China maintains its ban on cryptocurrencies, but opens a multi-million dollar door: Document No. 42 legitimizes RWAs

China is opening its doors to RWA assets through Document 42, while maintaining its ban on cryptocurrencies and establishing new supervised financial infrastructures.

The Asian powerhouse has introduced a new regulatory framework for digital assets, which, while still restrictive, also opens the door to one of the biggest innovations in the blockchain industry. 

On one hand, the Chinese government reaffirms the absolute ban on cryptocurrency trading; on the other, it establishes a formal legal framework for the tokenization of real-world assets (RWA)This week, the country's authorities jointly issued Document No. 42, which repeals "Notice 924" of 2021. Although this new directive does not imply acceptance of assets such as Bitcoin or Ethereum, which lack legal tender status in the nation, the regulation formally defines the RWA and allows its operation under strict conditions. 

According to local reports, tokenization activities on blockchain are now legal if they are carried out within approved financial infrastructures and under regulatory supervision, marking a technical and legal distinction between speculation with virtual currencies and the digitization of the real economy.

China's new approach to tokenized assets

China has lived under a strict ban on virtual currency activities for the past five years, a stance that the new document reinforces but significantly qualifies. Document No. 42 was issued by eight key authorities, including the People's Bank of China (PBoC), The National Development and Reform Commission (NDRC) and the Ministry of Public SecurityClause 1 of the text is unequivocal: virtual currencies do not have the same legal status as legal tender. Activities such as fiat-to-crypto exchanges, pricing services, and digital mining remain prohibited.

However, this regulatory divide becomes more pronounced when analyzing the treatment of RWAs. Unlike the 2021 framework, where tokenization was absent from the regulatory vocabulary, the new notice explicitly defines RWAs as the use of cryptographic and distributed ledger technologies to convert ownership rights or income from real assets into tokens. According to journalist Colin Wu, this definition implies that blockchain technology is recognized as a necessary foundation for this business model, provided it does not cross the line into the issuance of unauthorized private currency.

Wu also he pointed There appears to be a significant change in the treatment of yuan-linked stablecoins abroad. According to him, the document prohibits their issuance without formal approval, but suggests that if a project meets the regulatory requirements and receives official approval, it could operate within legal parameters. 

In parallel, restrictions remain in place on the promotion and use of cryptocurrency-related terminology in business names, a measure aimed at curbing speculation among retail investors and preserving the stability of the domestic financial system.

Beijing structures its tokenization model under total supervision

As Wu explains, the legitimacy of RWAs in China depends entirely on the environment in which the transactions take place. The new document stipulates that unless approved by the relevant authorities and conducted through designated financial infrastructure, such activities remain prohibited. 

This centralized structure contrasts with the decentralized nature of public cryptocurrencies because, instead of allowing an open ecosystem, regulators have opted for a centralized structure operating under a financial franchise model. Article 6 of Document No. 42 clearly defines the regulatory framework, stating that financial institutions cannot provide services related to virtual currencies, but they can participate in approved RWA projects by offering accounts, settlement, and custody. This incorporates traditional banks and custodians into the tokenization process, reinforcing the institutional trust necessary for the market to grow within a secure and controlled framework.

Chapter IV of the same document also introduces a compliance system for the tokenization of Chinese assets abroad. Instead of requiring strict prior approval, the model relies on notification to the China Securities Regulatory Commission (CSRC). This means that local companies managing the underlying assets must submit detailed information about the issuance structure and tokenization plans. Furthermore, when the transaction involves foreign debt, oversight will fall to the NDRC and SAFE; and if it involves equity or asset-backed securities, responsibility will shift to the CSRC.

According to experts, although the cryptocurrency ban remains in place, the new approach being adopted by the country's authorities eliminates the legal uncertainty that paralyzed RWA projects in the past. A clear path now exists, establishing regulatory compliance for tokenization. 

With all this, Beijing is trying to balance its need for control with technological innovation, building a more predictable environment where the digital and the institutional can begin to coexist.