Beijing Cracks Down on Stablecoins as Hong Kong Backs Issuer Rules

Beijing is tightening its grip on stablecoin activity, directing top financial institutions to halt all promotion of the digital asset class. In a bid to curb rising hype and possible speculative risks, regulators have ordered brokerages, think tanks, and research groups to cancel stablecoin seminars and stop publishing related content.

Crackdown Amid Mounting Hype

Issued late last month, the directive marks the latest sign of Chinese caution toward cryptocurrency, especially tokens pegged to the U.S. dollar. The move reflects growing unease in the country over fraud, illegal capital raising, and retail investor mania.

Authorities in Shenzhen issued public warnings about scams disguised as stablecoin investments. This warning was just one example of the increasing national concern over these crypto instruments.

As reported by Bloomberg, although the mainland officially prohibits crypto-related transactions, over-the-counter (OTC) trades are still active. Chainalysis predicts that OTC flows will reach $75 billion in China by the end of the first half of 2024.

In addition to fraud, another concern that Chinese regulators have among retail investors is herd behavior. Authorities are worried that speculative mania might result in large-scale financial instability, particularly with the majority of consumers having shallow knowledge of digital assets. Therefore, the government is taking preemptive measures to limit exposure prior to any severe harm occurring.

Hong Kong Charts Its Own Path

While mainland China tightens its control, Hong Kong is moving in the opposite direction. The city recently introduced legislation to regulate stablecoin issuers, attracting attention from mainland firms. 

Under the “One Country, Two Systems” framework, Hong Kong has the autonomy to build its own regulatory structure. Consequently, it’s becoming a testing ground for digital finance innovation within the greater Chinese economic zone.

This regulatory divergence is significant. It suggests Beijing is using Hong Kong as both a sandbox for digital asset experimentation and a shield to contain risk. The People’s Bank of China (PBOC), meanwhile, continues to push forward with its central bank digital currency. It recently launched an international operations center in Shanghai to promote cross-border use of the digital yuan.

Global Perspectives Take Shape

Whereas China is skeptical, the US is welcoming the introduction of stablecoins through official regulation. The newly enacted GENIUS Act offers a legal structure to dollar-backed digital tokens. This comparison also demonstrates the Chinese method of stimulating more cautious exploration via formal channels and punishing unsanctioned practices.