On December 5, the China Internet Finance Association, the Banking Association, and six other major industry associations jointly released a document titled "Risk Warning on Preventing Illegal Activities Related to Virtual Currencies." This follows the meeting of thirteen ministries on November 28 to crack down on virtual currency trading speculation, marking a subsequent regulatory action by industry associations. The document (hereinafter referred to as the "Risk Warning") conveys a certain chill, sending shivers down the spines of some entrepreneurs who are planning to tokenize real-world assets (RWA).

Many people have been asking in the background: Lawyer Sha, is RWA completely dead in the mainland?

As legal professionals in Web3, we believe the answer to this question is not simply "yes" or "no." The core of RWA is to digitize and tokenize offline assets through blockchain technology, followed by secondary market liquidity and financing. However, under the current regulatory context in the mainland, any tokenization activity attempting to link with public trading essentially challenges the red line set by the "9.24 Notice" in 2021. The "Risk Warning" from the seven associations feels more like adding several glaring locks to an already tightly closed iron door.

1. Why "cannot be done" in the mainland: Risk isolation under bottom-line thinking

The "Risk Warning" clearly states: "Currently, no financial management department in our country has approved any (real-world asset tokenization activities in the mainland)." Engaging in RWA in the mainland faces legal obstacles akin to "three mountains":

1. Qualifying illegal financial activities: The document characterizes the issuance and financing of RWA in the mainland as suspected illegal fundraising and unauthorized public issuance of securities. In the mainland, any financing behavior that bypasses licensing is akin to licking blood off a knife's edge.
2. Comprehensive blockade of financial institutions: Banks, payment institutions, and internet platforms are completely prohibited from providing settlement and promotional support for such businesses. Without channels for deposits and traffic, RWA in the mainland becomes like water without a source.
3. The strong position of legal currency: The stablecoins involved in RWA do not have legal status in the mainland, and attempts to anchor asset returns with them touch the nerve of monetary sovereignty.

From the perspective of criminal defense's bottom-line thinking: engaging in RWA in the mainland may not be a question of "is it dead or not," but rather "how many years will one be sentenced." However, from a governance perspective, this high-pressure situation is actually an "emergency brake" by regulators who have yet to find effective monitoring methods. As mentioned in the dialogue, this is largely to protect society and prevent the entire society from experiencing another systemic financial disaster similar to P2P.

2. The "oasis" abroad: The "outlet" under macro narrative

Since the mainland is a restricted area, attention naturally turns to offshore markets like Hong Kong and Singapore. Although the seven associations mentioned that "it is also illegal for offshore service providers to conduct business in the mainland," they did not issue a clear blanket ban on purely offshore businesses.

There is a profound macro narrative hidden here: China's internal economic circulation ultimately needs to connect with external circulation. The mainland's "strict closure" and Hong Kong's "decisive opening" are actually two sides of the same coin. The mainland needs such an "outlet" to allow assets to enter the international market in a compliant context.

As long as the project can achieve true "full offshore" status—where the underlying assets, funding sources, servers, and compliant entities are all located abroad, and there is no outflow of RMB from the mainland—regulatory authorities in the mainland typically lack the motivation for cross-border enforcement. In this model, if you are thriving overseas and comply with local regulations (such as obtaining a Hong Kong VASP license), that is your freedom.

3. Theoretical "smooth path" vs. practical "chasm": Timing is everything

At this point, some mainland entrepreneurs may come up with an idea: Can I take the rights to my domestic factory or mineral profits to Hong Kong to do RWA?

Theoretically, it is feasible to establish an SPV through an ODI (Overseas Direct Investment) structure and "transfer" rights to an offshore entity. However, in practical operations, this is akin to the treacherous roads in Li Bai's poetry, almost like a "chasm":

• First, the compliance shackles for asset exit: Cross-border rights confirmation is complex and easily suspected of asset transfer.
• Second, the "circuit breaker" for fund repatriation: The currency exchange process faces extremely strict scrutiny, and having accounts frozen is often just the mildest outcome; more severe cases may face fines or even suspicion of illegal fundraising.
• Finally, the legal risks for "domestic individuals": If someone operates offshore currency-related businesses while in the mainland, law enforcement can still take action (whether against management or ordinary employees, it all falls under illegal financial activities).

In fact, the more core issue regarding RWA business is "timing." Currently, we assess that at the regulatory level, multiple ministries have a unified opinion, and the domestic environment is in a "high-pressure period" of capturing typical cases. Even in Hong Kong, due to the cautious considerations of listed companies and licensed institutions regarding political and business relationships, the current stance is often "even if it is not prohibited by law, please wait a moment." The best strategy for existing projects at this stage is to respond to "window guidance," either halting operations or completely changing to an all-offshore plan, avoiding any actions against the wind.

4. Conclusion

RWA is not dead in the mainland; it has never truly been "understood." The statements from the thirteen ministries and seven associations once again reaffirm the red lines for domestic business.

However, for ambitious mainland enterprises, the real opportunity for RWA lies in the deep waters of "offshore." This is no longer a show of illegal fundraising in the mainland but a high-difficulty acrobatics concerning legal compliance, foreign exchange management, and international private equity.

Our advice is: If you want to engage in RWA, please first cut off all connections with domestic RMB, ordinary retail investors, and promotional channels. In the face of red lines, surviving longer is more important than running faster. The legal red line is never meant to be jumped over.

The current silence is for future regulation. If you are planning to conduct RWA business abroad and need legal compliance verification or structural design, feel free to contact us for in-depth consultation.

Special Statement: This article is an original work by the Crypto Sha Law Team, representing the personal views of the author and does not constitute legal advice on specific matters. For reprinting, please contact us privately to discuss authorization matters: shajunlvshi.

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