Chinese regulators are reportedly preparing to impose restrictions on mainland firms operating in Hong Kong, limiting their involvement in stablecoin and cryptocurrency activities. A Thursday report from Caixin, a prominent local news outlet, suggests that Chinese internet giants, state-owned enterprises, and financial institutions in Hong Kong could face pressures to withdraw from cryptocurrency-related projects. This includes the stablecoin license race, which has seen growing interest from major firms.
Hong Kong’s evolving stablecoin regulatory framework
The report comes after news that major financial institutions, including HSBC and Industrial and Commercial Bank of China (ICBC) the world’s largest bank by assets planned to apply for stablecoin licenses under Hong Kong’s new regulatory framework. This framework, which took effect on August 1, allows a six-month transition period for applications. According to regulators, 77 institutions have expressed interest in obtaining a license.
However, Caixin reports that Chinese banks and state-owned enterprises based in Hong Kong may be forced to withdraw their applications or postpone their stablecoin license pursuits following recent policy changes. An anonymous source in the financial industry told Caixin that the shift in policy reflects concerns about the uncertainty surrounding Hong Kong’s stablecoin market and the risks involved. The source advised caution, stating, Hong Kong’s stablecoin business is just beginning, and its future direction is unclear.
Growing interest in Hong Kong’s crypto sector before the policy shift
Before the new policy changes, several major Chinese institutions had shown keen interest in Hong Kong’s crypto market. In August, a subsidiary of China Merchants Bank launched a Hong Kong-based institutional crypto exchange. Additionally, JD.com, the China-based e-commerce giant, reportedly registered entities tied to a potential stablecoin launch just days ahead of Hong Kong’s stablecoin regulation coming into effect. Similarly, Ant International registered related entities for potential stablecoin operations in both Hong Kong and Singapore.
Hong Kong seeks to simplify crypto regulations for banks
Hong Kong Monetary Authority (HKMA) is considering easing capital requirements for banks dealing with crypto assets. The HKMA is reportedly exploring ways to lower the capital rules for banks holding crypto, making it easier for them to accept compliant stablecoins and invest in digital assets linked to public blockchains.
This move aims to further open up Hong Kong’s financial system to the growing demand for cryptocurrency services, while maintaining compliance and encouraging greater institutional involvement in the crypto space.
China’s cautious stance on stablecoins
The Chinese government’s approach to stablecoins has been notably cautious. As reported earlier in August, Chinese authorities instructed local firms to cease publishing research or holding seminars related to stablecoins. These actions were reportedly driven by concerns that stablecoins could be misused for fraudulent activities or as tools for money laundering.
However, China has shown signs of warming to the idea of stablecoins under carefully controlled conditions. Reports from late August suggest that Chinese regulators may allow the creation of yuan-backed stablecoins to promote the global use of China’s currency. This development comes after discussions at the Shanghai State-owned Assets Supervision and Administration Commission about how to strategically approach the stablecoin and digital currency markets.
In July, Conflux, a Chinese blockchain project, introduced a new stablecoin backed by offshore Chinese yuan aimed at circulation in countries involved in China’s Belt and Road Initiative. The stablecoin is explicitly barred from use within mainland China, underscoring the government’s cautious stance on domestic stablecoin usage.