China and stablecoins insulated? Hong Kong opens up while the mainland is blocked, a comprehensive analysis of the dual-track strategy.

Mainland China maintains strict bans on Crypto Assets and stablecoins, while Hong Kong aims to create a globally leading regulated virtual asset center. The market can't help but ask: Under the strict financial regulation walls in the mainland, will China's stablecoins ever have a chance to land? The answer reveals a carefully designed “dual-track parallel” and “trio” strategy: the mainland builds a sovereign defense line with the digital renminbi (e-CNY), while Hong Kong serves as a controlled testing ground for stress testing, simultaneously allowing market application exploration in specific scenarios.

China's Absolute Red Line: Financial Sovereignty is Not to be Challenged

To understand China's digital currency strategy, it is essential to recognize an unassailable “absolute red line”—the stability of national financial sovereignty and capital controls. Since the ban on initial coin offerings (ICOs) in 2017 and the comprehensive crackdown on cryptocurrency trading in 2021, the stance of mainland regulatory authorities has remained consistent: any private digital currency that could challenge the legal status of the CNY, impact financial stability, or facilitate capital outflows is subject to severe crackdowns. Recent actions targeting illegal cross-border transfers using Tether (USDT) further confirm this.

In this context, the digital renminbi (e-CNY) developed by the People's Bank of China has become the only legitimate choice at the national level. It must be clear that e-CNY is essentially a Central Bank Digital Currency (CBDC), representing the central bank's direct liability to the public (M0), and is a digital form of legal tender. Its design philosophy is “centralized” and “controllable anonymity,” with the primary goal of optimizing the domestic retail payment system, enhancing the efficiency of monetary policy transmission, and exploring cross-border payments within a controllable scope. It is a top-down “walled garden,” with the core being “control,” rather than the “openness” championed by the crypto world.

Therefore, fundamentally, it is unlikely that the mainland will allow the existence of a stablecoin that is based on a public chain, circulates freely, and is issued by private entities. This would not only conflict with the strategic positioning of e-CNY but also directly touch upon the sensitive nerve of capital free movement, challenging the classic “Mundell-Fleming trilemma” theory—namely, that a country cannot simultaneously achieve capital free movement, a fixed exchange rate, and an independent monetary policy. Given that China views the latter two as core interests, strict control over capital movement is an inevitable choice.

The existence of this red line determines that the relationship between stablecoins and the mainland is almost permanent. Any attempts to promote private stablecoins in the mainland will face resolute opposition from regulatory authorities. This is not only a dispute over technical routes but also a fundamental conflict between national financial sovereignty and global financial innovation.

Hong Kong's Controlled Testbed: Embracing Regulation

(Source: Hong Kong Securities and Futures Commission)

In stark contrast to the strict prevention measures in the mainland, Hong Kong is playing a unique role as a “testing ground.” The Hong Kong government's strategy is not to let things run wild, but to “embrace within regulation,” aiming to make Hong Kong a transparent, compliant, and investor-protecting global Web3 center. The Stablecoin Ordinance, effective August 1, 2025, is at the core of this strategy.

The regulation establishes a very high entry threshold for fiat stablecoin issuers:

High Capital Requirements: The paid-up capital must be at least 25 million HKD.

Full Reserve: Must be backed by 100% high-quality liquid assets as reserves, held by an independent custodian.

Strict Redemption Mechanism: The issuer must ensure that holders can redeem funds at face value within one working day.

Comprehensive Compliance Obligations: Adhering to strict Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations

Despite the market's enthusiasm, over 77 institutions have expressed interest in applying for licenses, but the attitude of Hong Kong regulators is extremely cautious. The Hong Kong Monetary Authority has repeatedly clarified that “the world's first offshore RMB stablecoin has been issued in Hong Kong” is false news, and emphasized that no stablecoin issuance licenses have been granted to date. The first batch of licenses is expected to be issued no sooner than the end of 2025 or early 2026, and the initial quota will be limited, aiming to ensure that risks are controllable.

In addition, the Secretary for Financial Services and the Treasury, Christopher Hui, clearly pointed out that over-the-counter (OTC) operators do not belong to the five categories of “recognized providers” approved by regulations, and therefore are not allowed to offer stablecoins to any investors (including retail and professional investors), clarifying the boundaries of compliant sales. All of this indicates that Hong Kong's experiment is being conducted within a highly controlled sandbox.

It is worth mentioning that Hong Kong's open stance has raised deep concerns among the regulatory authorities on the mainland. It is reported that the mainland regulatory agencies have provided “window guidance” to some companies planning to apply for licenses in Hong Kong, expressing a prudent attitude.

There are three main concerns behind this

Concerns about Financial Firewalls: How can an offshore renminbi (CNH) stablecoin that circulates freely on a public chain ensure that it will not be used as a new channel for evading mainland capital controls?

The Issue of Currency Sovereignty Extension: In the offshore market, who holds the issuance, governance, and clearing rights for a digital currency pegged to the CNY?

Conflict with e-CNY Strategy: If a CNH stablecoin issued by commercial institutions circulates widely globally, will it undermine the strategic layout of e-CNY in the field of cross-border payments?

It is precisely these fundamental structural contradictions that determine that the mainland will inevitably adopt a cautious observation and gradual opening attitude towards Hong Kong's stablecoin experiment. Before the regulatory technology and risk isolation mechanisms are fully matured, any potential gateways that could threaten the effectiveness of capital controls will not be easily opened.

Trio Strategy: Three Parallel Paths for the Digitalization of CNY

In summary of the above analysis, the future of the digitalization of the Renminbi is unlikely to be a single path, but more likely to evolve into three parallel paths that occasionally intersect, together forming a “trio.”

Path 1: Official Sovereign Layer ─ e-CNY's “Walled Garden”

e-CNY will continue to serve as the only officially recognized digital legal currency, accelerating its popularization in mainland China. Its cross-border applications will primarily be conducted through multilateral, authorized clearing networks such as mBridge (Multilateral Central Bank Digital Currency Bridge), enabling point-to-point “wholesale payment” cross-border transactions. This is a path centered on sovereign credit, pursuing absolute security and controllability with a “strong control” approach. The mBridge project has already connected multiple central banks, including China, Hong Kong, Thailand, and the UAE, achieving real-time cross-border payments through shared distributed ledger technology, bypassing the traditional SWIFT system. The advantages of this model lie in efficiency and cost, but its closed nature also limits its scope of popularization.

Path 2: Offshore Compliance Layer - Hong Kong's 'Limited Open' Sandbox

Hong Kong will serve as a controlled stress testing ground. In the future, when the regulatory framework matures, the mainland may tacitly allow a small number of well-capitalized institutions (most likely large financial institutions) with strong risk control capabilities to issue highly restricted CNH stablecoins in Hong Kong. These stablecoins may be based on permissioned blockchains or public chains with whitelist mechanisms, with transactions strictly monitored. Their main function will be to serve institutional-level financial market operations such as bulk commodity trading and Bond Connect, rather than targeting retail and crypto speculation. This is a “semi-open” path for conducting stress tests within sovereign borders. The key to this model is risk isolation: how to ensure that Hong Kong's stablecoin experiment does not penetrate into the mainland, threatening the effectiveness of capital controls.

Path Three: Market Application Layer──"Deep Cultivation" in Specific Scenarios

The innovative power of the market will not disappear; it will seek new outlets. The offshore CNY stablecoin AxCNH, which emerged under the regulatory framework of Kazakhstan and targets trade settlement for the “Belt and Road” initiative, is a typical case. Such plans will abandon the grand goal of becoming a universal currency and instead position themselves as B-end fintech tools serving specific industry chains (such as cross-border e-commerce, supply chain finance) or specific strategies (such as the “Belt and Road”). Their success does not depend on the bull or bear market of crypto assets but on whether they can truly reduce costs and improve efficiency for the real economy. This is a “pragmatic” path that avoids direct regulation and serves the real economy.

Conclusion: China's Dialectical Unity on Stablecoins

Returning to the original question: it is almost certain that mainland China cannot issue the stablecoin based on public chains that we typically understand, as it touches the “absolute red line” of national financial sovereignty. However, this does not mean that the path to the digitalization of the RMB is blocked. On the contrary, China is playing a big game. This game is composed of the solemn main theme of e-CNY, the prudent concerto of compliant stablecoins in Hong Kong, and the flexible variations of numerous scenario-based stablecoins.

This complex “trio” is always conducted by a nation pursuing “stability” and “control”. The eternal game between global liquidity in the digital age and the financial sovereignty of a single country will continue to evolve in this unique and subtle manner. For observers, understanding this complexity is more important than simply judging “possible” or “impossible”.