China and the United States compete over stablecoins: Why is the Shanghai State-owned Assets Supervision and Administration Commission learning about it?

Today I want to talk to you about the stablecoin track.

Why stablecoin? It is not only a payment tool, but also an infrastructure that penetrates the chain and connects the virtual world with real finance. Especially in the context of the upcoming launch of the Hong Kong stablecoin license, we would like to take this opportunity to systematically sort out the project requirements, regulatory boundaries, and implementation difficulties that we, as a legal service agency, see at the front line of clients for your reference.

The first question is, is it possible for stablecoins to reshape the international monetary system? Is it possible to replace the existing payment system on a large scale?

I don't know if you have seen a public account of Shanghai State-owned Assets this morning. They organized a study session yesterday, and the content was about stablecoins. In the past two days, some overseas media such as Reuters have also contacted us for interviews, and the core is also around the United States's next series of legislative actions on crypto assets and stablecoins.

What we can see is that in the past year or so, from Trump's campaign to his re-election, including his and the US government's relevant policy legislation on crypto assets, the pace of advancement has been significantly accelerated.

I think that in the United States' strategic layout in the entire Web3 industry, stablecoins are a very important part, but it is not all. At present, the entire cryptocurrency market is about 3.7 trillion US dollars, and Bitcoin accounts for about 50% to 60%. Bitcoin is undoubtedly the cornerstone of the entire Web3, especially the crypto market.

So we see that there are more and more listed companies in the United States that are like Bitcoin mines, and they can be listed and developed well in the capital market. At the same time, we see that companies like "MicroStrategy", now called "Strategy", have already made Bitcoin strategic reserves as their core business.

Now it is not only BTC, but also some people want to hoard BNB and Solana, hoping to copy Strategy's market play. The US Bitcoin market is receiving more and more strategic attention.

From the perspective of the US government, we can see two directions:

The first major direction is about Bitcoin.

Trump clearly stated that he hopes that all Bitcoin production will be completed in the United States in the future. Based on this, we see that a large number of miners in the United States are expanding their actions, and some miners even write "Made in USA" on the chain when they produce blocks. Therefore, the United States obviously hopes to further strengthen the core production capacity of Bitcoin in the future. In addition, the federal government and some state governments hope that the Bitcoin obtained from confiscations will no longer be sold, and some states have even begun to allocate part of the local fiscal budget to purchase or strategically hold Bitcoin. This shows that the US government has formed a clear strategy around the production and reserves of Bitcoin.

The second part is about stablecoins.

The current global stablecoin market is worth more than 260 billion US dollars, of which about 90% are stablecoins anchored to the US dollar, and even anchored to US bonds.

For example, the largest is USDT, with a market value of about 160 billion US dollars, of which more than 60% are allocated to US bonds; and the most compliant in the United States is USDC, which is about 60 billion US dollars, and its core assets are also allocated to US bonds.

Why does the United States strongly encourage the development of stablecoins? Because it can well solve the new demand for US bonds. As the issuer of compliant stablecoins, your underlying assets must basically be short-term government bonds or bank deposits. U.S. debt has become the optimal configuration.

For the United States, this is equivalent to increasing the demand for U.S. debt. The more stablecoins are issued, the more people will indirectly hold U.S. debt. According to the logic of USDT, 60 dollars of 100 dollars of USDT may be U.S. debt.

Traditionally, it is difficult for us individuals or small and medium-sized institutions to buy U.S. debt. But if I hold USDT, it is equivalent to indirectly owning 60% of U.S. debt. This explains why the United States strategically values compliant stablecoins-solving the problem of U.S. debt sales channels.

Another more important reason is out of concern that the traditional U.S. dollar settlement system will be bypassed.

Now many crypto assets and blockchain networks are trying to bypass the SWIFT system, and the United States is certainly unwilling to give up financial control. Therefore, it hopes that the issuers of stablecoins will be regulated by it so that it can continue to use financial sanctions tools.

For example, in April 2025, Russian financial officials publicly expressed their consideration of issuing their own stablecoins because about $1.4 billion of USDT in one of their crypto asset exchanges was frozen.

Many people think that stablecoins are decentralized and can be used freely across borders, but in fact, Tether, the issuer of USDT, can remotely freeze the funds on the address through the background mechanism.

This is Russia's dilemma: a large number of USDT in the exchange were frozen on the chain by Tether at the request of the US government. This shows that in the blockchain world, even if you have funds in your on-chain wallet, you may not be able to move them.

More and more law enforcement agencies are requiring stablecoin issuers to freeze assets through judicial assistance documents. This on-chain law enforcement capability is what the United States particularly wants to retain and strengthen.

Therefore, the United States prefers to make these stablecoins "compliant" and let the issuers be regulated by it, otherwise it will be difficult to control the law enforcement power on the chain in the future.

This is also what we have always emphasized. China must promote the exploration and issuance of stablecoins as soon as possible. Whether it is Hong Kong dollars, RMB, offshore RMB, or even US dollars, it is essentially to seize "sovereign control on the chain."

In addition to the demand for US debt, one of the core reasons for the United States to promote compliant stablecoins is to maintain law enforcement control.

So, will this system reshape the international monetary system? Can it replace the existing payment system on a large scale?

My judgment is that it is not that exaggerated.

In the future, stablecoins will show "user stratification" in C-end consumption, remittances, or B2B cross-border trade.

The first stratification is those users who want to hide through virtual currency, or do not want to be regulated by the government. They may still use so-called "non-compliant" stablecoins like USDT, or even more anonymous stablecoins. They are actually not in the mainstream supervision or mainstream vision, such as gambling platforms, gray and black production platforms, sanctioned countries, etc.

On the other hand, like USDC, or the compliant stablecoins issued under the supervision of Hong Kong, I think it will not be a completely independent existence outside the current banking system. It is more integrated, or as a tool, supplemented into the existing cross-border trade or cross-border payment and settlement system.

For example, I can give two examples, one for the C-end and one for the B-end.

Among the C-end examples, the most common one is the so-called USDT bank card. In simple terms, you charge or transfer your virtual currency to your bank account, and this bank account is associated with a virtual address. When you swipe the card, it will automatically deduct the relevant crypto assets from this wallet address. This is actually adding a "crypto asset consumption" function to the existing bank account system.

So you will find that it has not replaced the banking system, but has only added the function of recharging and consuming crypto assets to the original system. It is a supplement, not a replacement.

This is the most common scenario on the C-side.

On the B-side, for example, a large number of third-party companies in China are now going overseas to Hong Kong, Singapore, and overseas to do Web3 acquiring business. This logic is actually not fundamentally different from the current B2B cross-border acquiring business.

For example, the most common way now is: I open an account at a third-party payment company, set up a Hong Kong company, and then upload the business license, registration certificate, personal information, etc. on this account according to the logic of traditional third-party payment "merchant account opening", and then open a bank account on the platform.

At the same time, this bank account will also be equipped with a "virtual currency collection account". As a merchant, I can have two collection entrances at the same time: one is a traditional legal currency account, and the other is a virtual currency address.

And after receiving the payment, I can complete the exchange between cryptocurrency and legal currency on the platform. If I want to make external payments, I can choose cryptocurrency, or I can choose a US dollar or Hong Kong dollar account to pay.

So you will find that in this scenario, cryptocurrency does not actually subvert the traditional banking system, but adds a functional module based on the original system. At the same time, in the process of using virtual currency, it must undergo KYC, KYT, and anti-money laundering reviews throughout the entire chain.

So you will find that this wave of Web3 payments or the use of stablecoins is actually not the same thing as the "decentralized payment" and "bypassing the banking system" that the Web3 industry talked about in previous years.

The focus of everyone's discussion has changed from building a "decentralized monetary system" to "how traditional finance embraces Web3 payments" and "how to use stablecoins to improve efficiency and create business value."

This is my view on the first question: it is not a replacement, nor a revolutionary existence, but an improvement in efficiency and experience on the existing system, and an enhancement of functions and scenarios.

The second topic: What is my country's attitude towards stablecoins? What intentions are revealed by the current official remarks and actions?

Many customers who come to us to discuss cross-border payment solutions, especially cross-border payment companies that are doing well in the mainland, are actually "itchy" on the one hand, but also have some concerns in their hearts.

Because we will participate in some government discussions, and have in-depth exchanges with customers and friends in the industry who are really engaged in stablecoin solutions. What we understand is that Hong Kong is indeed vigorously promoting stablecoins, with the aim of serving as China's "financial test field" to counter the United States' lead in Web3 from a strategic defense perspective.

So when we talk about China's attitude towards stablecoins, we cannot only look at the mainland, nor can we only look at Hong Kong, but must look at the coordination and division of labor between the two.

First, let's look at mainland policies.

Since 2013, China has actually made many qualitative and regulatory statements on cryptocurrencies. After we sorted it out, we can roughly summarize it into several parts:

First, public fundraising of crypto assets cannot be carried out in China, that is, ICO is explicitly prohibited.

Second, virtual currency exchanges cannot be established in China or related businesses cannot be conducted for mainland residents. The key point here is "cannot conduct business facing mainland users."

But here comes the key point: the policy does not deny the legality of Chinese citizens holding crypto assets.

This is very important, which determines that the behavior of Chinese companies or individuals holding crypto assets through studying abroad, tourism, overseas trade, etc. is legally legal. There are multiple judgments in Shanghai courts that clearly recognize that virtual currencies are legal to hold and are protected by property rights.

But the embarrassing thing is that if you use USDT to pay for goods in China, even if both parties agree, this contract is still an "invalid contract" in law.

This is a very subtle point.

Third, cryptocurrency mining is not allowed in China. It is an administrative penalty, not a criminal issue.

So overall, as long as you don't touch these three "negative lists", there are actually many things that can be done in mainland China.

Then let's look at Hong Kong.

Since the release of the "Web3 Policy Declaration 1.0" in December 2022, Hong Kong has advanced four key directions in the field of Web3 and digital assets:

First, virtual currency exchanges are officially included in the licensing system, and there are currently 11 licensed exchanges.

Second, crypto asset funds (whether similar to traditional private placements or public offerings) can be established in accordance with the law. The core difference is that the underlying assets become crypto assets, but the logic of "raising funds, investing, managing and withdrawing" is no different from traditional funds.

Third, it is stablecoins. Hong Kong's "Stablecoin Regulatory Framework" will be officially implemented on August 1, 2025. Regulatory requirements include: issuing stablecoins in Hong Kong, issuing Hong Kong dollar stablecoins globally, and promoting stablecoins to the public in Hong Kong will all face regulation; the initial capital must be no less than HKD 25 million; 100% asset reserves must be maintained, and interest is not allowed. We have noticed that the Hong Kong regulatory authorities have also "cooled down" recently, emphasizing that stablecoins have no investment value and are not products for the public, and that they may only issue 3-5 licenses in the end. JD.com, Standard Chartered, Ant, Yuanbi, etc. are currently the public applicants.

Fourth, Hong Kong will also focus on promoting OTC over-the-counter trading licenses. Because there are hundreds of OTC stores on the streets of Hong Kong now, some of which are for C-end retail customers, and some are to cooperate with large exchanges or sanction funds to bypass. We judge that Hong Kong will launch an OTC licensing system in the first half of 2026 and formally include this business in regulation.

RWA, or the tokenization of real assets, is a possible direction for Hong Kong to develop, or a direction that may become more popular. We have also seen it in the news, such as the charging piles made by Longxin and the photovoltaic projects made by GCL. But I personally think that there are still some problems in the process of exploring this area:

First, the current market replicability of these projects is not that strong, and many are still in the demonstration or trial stage.

Second, these RWA projects are still restricted to the framework of qualified investors and qualified institutions, and cannot be directly oriented to retail investors. In the future, whether it can allow ordinary people to directly participate like Bitcoin, I think it is still a question mark.

But I have always believed that if the RWA project wants to be truly implemented, it must have two basic technical and institutional conditions:

The first is that the data on the chain must be credible enough. It cannot just be an Excel export from the ERP system and then written into the blockchain, but it must achieve end-to-end data collection, such as uploading directly from the sensor device to the blockchain to ensure that the data cannot be tampered with.

The second is how the value is circulated. You can't say that I just "confirm the ownership" of the data on the chain, but there is no way to distribute the value and settle the income. Then this project is just an "information system upgrade" rather than an application of Web3.

And to realize the circulation of value, stablecoins are the core infrastructure.

We can imagine a scenario: As an investor, I invested $1 million in a charging pile project, and I hold the project's token ABC. The income data generated by this charging pile is visible on the chain, so every time a user charges, I will be paid stablecoins through smart contracts, such as HKD-Token or other compliant stablecoins.

This link is the native closed loop of Web3 - data is credible, transactions are automatic, and income settlement is traceable.

So we believe that the implementation of compliant stablecoins is the most important supporting condition for Hong Kong to promote RWA. Without stablecoins, you can't talk about the on-chain circulation of real assets.

Then let's discuss another question: How to promote compliant stablecoins? Is it by government force? Is it by the central bank issuing a document? My view is: No.

The promotion of stablecoins should not come from the "hard push" of the Hong Kong government or the mainland Chinese government, nor should it come from the "assignment of tasks" by the banking system. It should be a demand-oriented promotion path.

Who has the demand? Merchants and B-end users of cross-border settlement. As long as they are willing to use it, can use it, and use it in compliance, stablecoins will naturally develop.

Yesterday I also saw a view from a certain financial research institute that onshore and offshore RMB stablecoins should be promoted simultaneously.

I don't quite support this view.

This view sounds comprehensive, but it is actually unrealistic.

Why? Because if you let mainland China issue onshore RMB stablecoins now, the problem it faces is the same as the problem faced by digital RMB back then - there is no use scenario. You can't rely on administrative assignments and force banks to promote stablecoins. This approach will not work.

So I think the most realistic path at present is to let Hong Kong take on this experimental responsibility. Use offshore RMB to issue stablecoins, run a round in Hong Kong first, and then consider how to connect with the mainland next.

I also find it interesting that the Hong Kong regulatory authorities also said: "It is not difficult to apply for stablecoins. The difficult part is where you can use this coin after it is issued." In other words, the license is not a problem. The real problem is where your landing scenario is.

Like JD.com, it is very clear that its stablecoin comes with its own scenarios. For example, its Hong Kong e-commerce site, Macau site, and supply chain settlement system all natively support its stablecoin payment. In this case, it does not need To C promotion. It does not need to attract users through airdrops or social media at all, but directly "If you use JD.com services, you can use my coins." These are all real scenarios.

This is a very typical B-side cold start method.

But in addition to JD.com, I would like to see whether other issuers can use stablecoins. I am also curious about how they are going to promote it.

Of course, I also think that stablecoins are a very valuable infrastructure for the "real asset tokenization" that the Hong Kong government wants to focus on promoting next. Because RWA is not enough to rely on on-chain evidence, its real difficulty is "how to solve the settlement" and "how to distribute the income", and both of these things require stablecoins.

Globally, the issuance of US dollar stablecoins is still the largest and the most versatile. How to make Hong Kong's Hong Kong dollar stablecoin more attractive?

My point of view is: you either bring your own scene traffic resources, such as if you are a platform; or you go to exchanges like HashKey and OSL and ask them to include your stablecoin in the trading pair and make it part of the trading channel.

This is how USDT itself came out: after issuing the coin, it goes to the exchange, and then people buy and sell it through the trading pair, and it naturally circulates.

Hong Kong's compliant stablecoin cannot provide interest income, so C-end users actually have no motivation to actively hold it.

This determines that you cannot take the To C route and can only rely on the B-end ecosystem or channel distribution.

Of course, I think there is another possibility, which is to allow some large enterprises with Chinese characters to participate in the issuance of stablecoins.

Such central enterprises have many businesses, many companies, and many fund settlement needs around the world. If it issues a compliant stablecoin, it can not only circulate in its own ecosystem, but also realize automatic account splitting, supply chain financial optimization, etc. through the programmability of stablecoins.

The more important point among them is "autonomy and controllability". If China's central enterprises use USDT today, it is easy for them to be analyzed through on-chain data when they conduct business in some sensitive countries. Because blockchain appears anonymous on the surface, but it is actually public. Once analyzed through on-chain tracking tools, it is easy to reveal your capital flow and partners.

Not to mention, if you have 1 billion USDT in your wallet, one day Tether receives a letter of cooperation from a US law enforcement agency and freezes it directly on the chain with one click, then your 1 billion assets will be "visible but unmovable". This is completely unacceptable to many large state-owned enterprises.

So I think that large enterprises use compliant stablecoins, largely out of the need to protect "privacy control rights" and "fund use rights". From this perspective, even if Hong Kong's Hong Kong dollar stablecoin does not have C-end promotion capabilities in the short term, it still has very important "B-end strategic value".

The third topic: Will China relax restrictions on cryptocurrencies?

My view is negative.

I don't think that mainland China will open up the legal use of stablecoins or cryptocurrencies in the short term. The reason is not the stablecoin itself, but the problem of foreign exchange control. Unless China's foreign exchange management system undergoes a qualitative change.

I also agree with Dr. Xiao Feng's point of view. He said that stablecoins should be "offshore first, then domestically and abroad, and then fully opened up." I think this three-step route is very realistic.

At this stage, the linkage between Hong Kong and the mainland is actually more imaginative. In the final analysis, whether it is an exchange, a crypto fund, or the future issuance of stablecoins, the market that Hong Kong really serves is actually mainland China. It is not competing with Coinbase for licenses, nor is it competing with Binance for functions.

The real market for stablecoins in Hong Kong is the cross-border settlement of Chinese companies.

For example, if you are a foreign trade company, you set up a company in Hong Kong, open an account, and exchange the virtual currency you receive for Hong Kong dollars or US dollars at an exchange or OTC exchanger in Hong Kong, and then return it to the mainland through a bank. This entire process is now feasible and compliant.

For many Chinese companies, if you do not plan to access stablecoin payments in the future, you may fall behind. Because using stablecoins for settlement is not only efficient and low-cost, but also increasingly formal.

For mainland third-party payment companies, the path I recommend is: you set up a company entity in Hong Kong, apply for compliance licenses such as OTC, and then embed the stablecoin module in your existing B2B cross-border acquiring solution. This not only meets the real needs of customers, but also does not violate mainland regulatory requirements.

At the same time, I also believe that in stablecoin and Web3 payment scenarios, the demand from the B-end will be much greater than that from the C-end.

In addition, policies such as the "Greater Bay Area Cross-border Financial Management Connect" clearly allow mainland residents to purchase overseas compliant financial products. Then I think that Hong Kong's BTC ETF, Ethereum ETF, etc. can actually be included. Moreover, this operation does not involve direct exchange between RMB and virtual currency. It only realizes investment through the packaging of financial products such as ETFs. This path can be legally implemented.

In other words: ordinary people's money did not directly buy coins, but indirectly participated in this asset class through ETFs. In this process, the country can also use this money to "strategically allocate Bitcoin."

The vast majority of mainland residents will not directly use stablecoins in the short term. Even if they do, they may contact them through financial products. This is my understanding of a way that China can use to bring cryptocurrency into ordinary people's homes in the future.

In addition to this payment field and financial investment, we see that there are other business forms that can be implemented in Hong Kong. The most typical one is that traditional Internet companies are trying to transform in the direction of Web3.

For example, a Hong Kong-listed company we serve, Boyaa Interactive, should be one of the listed companies with the largest number of Bitcoins in the entire Asia region. In December 2023, it issued an announcement, announcing that it would use a quota of 200 million US dollars, part of which would be used to purchase BTC and part of which would be used to allocate ETH. In addition to these strategic reserves, it has also invested in many Web3-related funds externally, such as Waterdrop Capital and some database companies that do Web3 industry infrastructure. This shows that it is not just "holding coins", but is more optimistic about the Web3 track itself in the long term and is making industrial layout.

Another example is the crypto funds in Hong Kong. In fact, there are many people doing it now. But the institutions that can really get the Hong Kong No. 9 license, that is, the compliance fund management license, are actually rare. Some friends I know did not apply for the No. 9 license for the crypto funds they did in Hong Kong - not because the license is too expensive, in fact, a license is less than 2 million Hong Kong dollars, which is not a problem for many people. What they worry about is that once they get the license, they will be subject to very strict restrictions in terms of trading strategies and asset selection, which may be constrained. Therefore, many crypto funds are still operated in offshore structures and are not directly connected to the Hong Kong licensing system.

Therefore, we can also see that the businesses that are really "running" in Hong Kong are roughly the following: exchanges, cross-border acquiring, crypto funds, and strategic currency holdings by listed companies.

The real Web3 applications, such as blockchain games, social networking, content platforms, etc., are still in the early stages, and it is difficult to say that they have "large-scale landing". This is why we are now more inclined to invest our time and energy in the "tech finance" track.

We believe that the directions of stablecoins, payments, asset management, exchanges, etc. are truly feasible and commercially valuable. As for blockchain and games, blockchain and social networking, etc., I think these may be a little late and still need time.

End

If Bitcoin is a kind of rebellion, then stablecoin is a compromise, a product of finding a balance between ideal and reality. It must carry the vision of technology and obey the order of finance; it must retain the enthusiasm of innovators and face the cold eyes of regulators.

It is in this tug-of-war that we see a more real and complex Web3 world taking shape - it is no longer just a utopian "decentralized narrative", but has begun to penetrate into cross-border payments, corporate settlements, financial infrastructure and other links that are truly related to the operation of the real world.

The reason why stablecoins are important is not how innovative they are, but that they connect a truly usable bridge between the real financial system and the digital world.

For us, the significance of legal services is not just to draw lines and set limits, but also to clarify boundaries, identify paths, and help those who are truly capable and willing to push the industry forward to get things done.