Cover Story: China Carves Out a Narrow Path for Offshore Asset Tokenization

1. On February 6, 2025, China’s central bank and seven other agencies issued a joint notice known as "Document No. 42," clarifying the legal status of tokenized real-world assets (RWA) and distinguishing between a domestic ban and a closely regulated pathway for offshore fundraising using tokenization. While reaffirming that virtual currency-related businesses remain illegal on the Chinese mainland, the notice introduced for the first time how domestic assets could be legally packaged and issued as tokenized products overseas, applying the same stringent oversight as for traditional debt, equity, or securitization products. [para. 1][para. 2][para. 3]

2. The China Securities Regulatory Commission (CSRC) concurrently released operational guidelines specifically targeting tokenized asset-backed securities issued overseas and backed by domestic assets, signaling immediate regulatory action. Industry insiders expect that additional rules for other token categories could follow. The approach aims to separate lawful asset-backed tokenization from speculative crypto activities, with regulators emphasizing that setting out the rules does not imply policy encouragement. Instead, application standards remain demanding, raising the bar for compliance.[para. 4][para. 5]

3. Investor sentiment responded positively to the potential compliance window. Stocks such as GCL Energy Technology and Guotai Junan International Holdings surged after the policy announcement. Meanwhile, major financial institutions and tech giants, including China International Capital Corp., Ant Group, and JD.com, began exploring the implications and collaborating on tokenization-related endeavors. The policy follows significant growth in global RWA markets during late 2024 and early 2025 and addresses illegal fundraising activities by unlicensed promoters in China using the RWA label.[para. 6][para. 7][para. 8]

4. The new regulatory framework defines RWA tokenization as converting various ownership or income rights into tradable digital tokens using cryptographic and distributed ledger technology. Critically, regulators adopt a "look-through" approach that focuses on the economic substance rather than the blockchain form, subjecting most RWA deals to the same set of regulations as traditional financing: offshore debt, equity offerings, or asset securitization. These are divided into four categories—external-debt RWAs, equity-like RWAs, securitization-like RWAs, and others—with each overseen by relevant government agencies. All categories face oversight from the State Administration of Foreign Exchange.[para. 9][para. 10][para. 11][para. 12]

5. Zeng Gang, an expert at the Shanghai Institution for Finance and Development, highlighted that this is the first clear distinction between RWA tokens and virtual currency in China. He described the approach as technologically neutral, indicating that while regulators provide a compliance path, they neither promote nor reject RWA as a financing tool. This method mirrors regulatory practices in Hong Kong and the United States, underscoring China’s intention to maintain tight controls.[para. 13][para. 14][para. 15][para. 16]

6. Although the rules open a previously nonexistent route for offshore tokenization, the focus remains on strict supervision rather than promotion. To issue a compliant tokenized asset overseas, a Chinese company must secure multiple government approvals and undergo rigorous review, including asset eligibility and documentation requirements. There is a "negative list" restricting ineligible assets or companies with problematic backgrounds. Early pilot projects involved high costs and raised limited funds, often exceeding annualized returns of 15%.[para. 17][para. 18][para. 19][para. 20]

7. As of February 2025, over 90% of the $23.87 billion global on-chain RWA assets were financial or commodity-based, with U.S. Treasuries representing more than 41%. Physical assets, like real estate, remain a small portion because of complicated cash flow and ownership verification. There is debate about which Chinese assets are best suited for tokenization; although some suggest distressed sectors may benefit, others question whether tokenization itself can create investor demand. Many analysts see the greatest potential in equity tokenization, especially for unlisted companies, as China’s offshore equity fundraising has dropped from $140 billion in 2021 to about $60 billion in 2025.[para. 21][para. 22][para. 23][para. 24]

8. Preventing risk contagion from offshore crypto activities into the Chinese financial system is a top priority. Platforms facilitating issuance must meet domestic risk and compliance standards. Hong Kong and Singapore are preferred venues, while U.S. exchanges impose higher barriers for Chinese firms. Hong Kong, in particular, has developed a robust RWA market and regulatory ecosystem, recently issuing multiple batches of tokenized bonds and expanding retail access. The requirement remains that all offshore transactions prevent direct involvement by mainland entities.[para. 25][para. 26][para. 27][para. 28][para. 29][para. 30][para. 31][para. 32]

9. Industry observers generally welcome the move as replacing uncertainty with a clear compliance route, albeit a restrictive one. Some major institutions have revived offshore projects, focusing on non-mainland assets. Market participants interpret the shift as China separating RWA from general cryptocurrency activity, thus creating sustainable space for compliant issuance. Nonetheless, experts caution that successful fundraising ultimately depends on asset quality, cash flow transparency, and credible market demand—not just the token format.[para. 33][para. 34][para. 35][para. 36][para. 37]