China's RWA Issuance Framework Emerges with Strict Domestic Controls, Hong Kong as Potential Offshore Hub

Beijing – China's regulatory landscape for Real World Assets (RWA) tokenization is taking shape, with a recent joint notice from the People's Bank of China and seven other government bodies signaling a stringent approach to cross-border RWA activities. The directive, referred to as "Document No. 42," establishes a framework that prohibits domestic RWA issuance while imposing strict oversight on offshore issuances.

Sources familiar with the regulatory discussions indicate that Hong Kong is being considered as a potential jurisdiction for the offshore issuance of RWAs. Assets based in Hong Kong are reportedly not subject to the purview of Document No. 42 and will not fall under the jurisdiction of mainland Chinese regulatory bodies.

However, the regulatory stance remains cautious. If RWA issuances in offshore locations like Hong Kong were to utilize underlying assets from mainland China's securities or funds, they would fall under the responsibility of the China Securities Regulatory Commission's Institutional Department.

"Previously, any such activity was entirely prohibited," a source stated. "While the current directive does not explicitly state a complete ban, it enforces strict regulation on the outbound flow of domestic assets for RWA issuance. It is crucial to understand that this does not signal any form of encouragement or an intention to promote development in this area."

The emphasis remains on controlling and preventing the outward movement of Chinese assets for RWA tokenization, indicating a deliberate strategy to manage risks associated with this burgeoning sector.

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