Hong Kong stablecoin has transformed from a pioneer land to a wait-and-see stage! Ant Group and JD.com press the pause button, insider information exposed.

Hong Kong was once a hotbed for stablecoin innovation, being the first to introduce a licensing system. However, tightening regulations in mainland China have led tech giants to hit the “pause button,” shifting the market from a sprint to a wait-and-see approach. The People's Bank of China (PBOC) recently convened several mainland companies under its supervision, instructing them not to advance Hong Kong stablecoin plans until they receive directives from the central bank. Ant Group and JD.com have both paused their stablecoin issuance plans in Hong Kong, while a subsidiary of China Merchants Bank even removed its statement regarding a tokenization fund in cooperation with Binance.

Regulatory First: Hong Kong's Stablecoin Framework is Globally Leading

In 2024, the Hong Kong Monetary Authority released the “Consultation Report on the Licensing Regime for Stablecoin Issuers,” clearly stating that licensed issuers must ensure that their issued and circulating stablecoins are fully backed by reserve assets. Additionally, the Monetary Authority requires licensed issuers to entrust the reserve assets to licensed banks in Hong Kong and effectively segregate the reserve assets from the issuer's own assets. These measures aim to strengthen the regulation of the stablecoin market and ensure financial stability.

Hong Kong Chief Executive John Lee previously announced in his policy address that he is actively implementing a stablecoin issuer system and will focus on the development of tokenized assets. The Monetary Authority will continue to advance the Ensemble project sandbox, supporting commercial banks in launching tokenized deposits and real tokenized asset transactions, such as settling tokenized money market funds with tokenized deposits, and assisting the government in regularizing the issuance of tokenized bonds. Additionally, the report also mentioned enriching gold investment tools and supporting the development of new products like tokenized gold products.

Hong Kong's stablecoin licensing system has pioneering significance globally. Compared to the United States, which has yet to establish a federal-level regulatory framework for stablecoins, the European Union's Markets in Crypto-Assets (MiCA) regulation has been implemented but is still fine-tuning its execution details. Hong Kong's regulatory framework demonstrates a competitive advantage in both speed and clarity. This “regulatory-first” strategy was originally seen as an important leverage to attract global stablecoin issuers and crypto companies, giving Hong Kong the opportunity to become a digital asset hub in Asia and even globally.

However, the full realization of ideals is still constrained by reality. The improvement of regulatory frameworks does not equate to market activity. When mainland regulatory bodies remain highly vigilant over cross-border capital flows and financial innovation, the development space for Hong Kong stablecoins is substantially restricted.

Central Bank Presses Pause on Tech Giants

According to informed sources, the People's Bank of China has recently summoned several domestic companies (including banks and non-bank payment institutions) under its regulation, requiring them to refrain from advancing stablecoin plans in Hong Kong until further instructions from the central bank. The China Securities Regulatory Commission has also recently suggested that domestic securities firms suspend RWA (Real World Assets) projects in Hong Kong due to concerns about signs of overheating in the market. This reflects that Chinese regulatory bodies are trying to cool down the recent fervor surrounding stablecoins and RWA tokenization in the Hong Kong market.

This shift in regulatory attitude has had an immediate impact on the market. Ant Group had stated in June this year that it would participate in the Hong Kong stablecoin pilot project, and JD.com also expressed intentions to join the pilot plan. However, both tech giants have now suspended their plans to issue stablecoins in Hong Kong. CMB International Asset Management, a subsidiary of China Merchants Bank, even deleted a statement from its WeChat public account last week, which originally announced a collaboration with Binance's BNB Chain to launch a tokenized US dollar money market fund.

The collective retreat of these enterprises shows that the development of the Hong Kong stablecoin market is not only dependent on local regulatory policies but is also constrained by the attitudes of regulatory bodies in the mainland. For those enterprises registered in the mainland and regulated by the Central Bank, even if Hong Kong offers a compliant licensing system, they dare not rashly advance as long as the Central Bank has not clearly expressed support. This regulatory coordination issue under the “one country, two systems” framework has become the biggest obstacle to the development of stablecoins in Hong Kong.

Core Considerations for Tightening Regulation in Mainland China:

Capital Control Risk: Stablecoins may become a tool for circumventing foreign exchange controls, threatening the stability of the RMB exchange rate and capital account management.

Concerns about Financial Stability: Large-scale stablecoin issuance may divert bank deposits, affecting the intermediary function of traditional finance and the ability to extend credit.

Cross-border Payment Sovereignty: China is promoting the cross-border application of the digital Renminbi and does not want commercial stablecoins to seize this strategic high ground.

Regulatory Arbitrage Prevention: Concerns that companies may use Hong Kong as a “regulatory loophole” to bypass the stricter financial regulatory requirements in the Mainland.

However, some analysts state that despite the restrictions imposed by Chinese regulatory authorities, China's overall open attitude towards digital assets has not changed in the context of competition with the United States. This is because the relevant guidelines seem to target mainland registered companies conducting related businesses overseas (including Hong Kong) and should not be interpreted as a complete denial of Hong Kong's digital asset development path by China.

Strategic Hesitation in the Context of Sino-US Competition

Yifan He, founder and CEO of Hong Kong Red Date Technology, stated that as the Trump administration intensifies its efforts to promote the development of digital assets in the United States, China still recognizes the strategic importance of crypto assets in competing with the U.S. and has accelerated its exploration of digital assets this year. “The most important variable at the moment is the direction of the U.S. The more actively the U.S. promotes the development of digital assets, the more necessary it is for China to respond, because under the competitive landscape between the two countries, monetary policy is almost the most important policy tool in the economic realm.”

This strategic consideration makes China's attitude towards Hong Kong stablecoins full of contradictions. On one hand, China does not want to fall completely behind the United States in the field of digital currencies and needs Hong Kong as a frontier for exploration and innovation. On the other hand, rapid financial innovation may bring uncontrollable risks, especially in the current economic environment where financial stability is placed at a very high priority.

This kind of hesitation is reflected in the market as a contradictory operation of “advancing while stepping on the brakes”. The Hong Kong Monetary Authority continues to improve the regulatory framework, releasing consultation documents and promoting pilot projects, sending positive signals. However, the Central Bank and the Securities Regulatory Commission have requested mainland companies to suspend participation, making these seemingly open policies become “idle gears”, lacking practical support from market entities.

Moreover, the development of stablecoins in Hong Kong faces potential competition from the digital yuan (e-CNY). China is actively promoting cross-border pilot programs for the digital yuan, with Hong Kong being an important testing ground. If commercial stablecoins develop on a large scale in Hong Kong, they may divert usage scenarios and market acceptance from the digital yuan, which is unacceptable to the Central Bank. Therefore, regulators prefer to “first implement the cross-border applications of the digital yuan, and then consider the space for commercial stablecoins.”

Institution-led innovation is the only way out

Despite the fact that the Hong Kong region has been authorized to develop a digital asset center, the Chinese regulatory authorities' demand to tighten practices related to stablecoins and RWA business actually reflects their ongoing concerns about capital control. Tang Bo, Director of the Financial Research Institute at the Hong Kong University of Science and Technology, pointed out that the tokenization of stablecoins and RWAs involves key issues such as currency control, cross-border capital flows, and investor protection. Fundamentally, the operation of stablecoins is similar to that of a “narrow bank”, which issues liabilities fully backed by safe assets. Such products may exert pressure on traditional financial intermediaries by “siphoning off deposits, reshaping credit channels, and introducing new systemic risks.”

He believes that in the future, Hong Kong's stablecoin should focus on institution-led innovations, such as the tokenization of government bonds or regulated stablecoins used for trade settlements, thereby playing its role as a bridge connecting Eastern and Western markets. “As long as Hong Kong aligns its regulatory framework with the concerns of the mainland while continuing to maintain global connectivity, it can still be a credible international digital financial center, rather than a testing ground in a regulatory gray area.”

This “institution-led, compliant innovation” path means that the development of stablecoins in Hong Kong will be more conservative and gradual. Those hoping to quickly launch consumer-oriented stablecoin products and compete in the retail market against USDT and USDC are essentially excluded. Instead, there are tokenized products targeted at institutional clients for specific purposes, such as:

1. Tokenization of government bonds to enhance liquidity and settlement efficiency.

2. Trade finance stablecoin, reducing settlement costs for cross-border trade.

3. Commodity settlement Token, serving the positioning of Hong Kong's commodity trading center.

4. Wealth management tokenization products, private banking services for high-net-worth clients.

This model, while losing the ambition to challenge the dominance of USDT with a “shortcut” approach, may be more in line with the risk preferences and strategic considerations of Chinese regulatory authorities. It positions the Hong Kong stablecoin as a tool to serve the real economy and institutional clients, rather than a target for retail speculation.