China Expands Crypto Crackdown to Include RWA Tokenization and Network Traffic

China has dramatically expanded its cryptocurrency restrictions with a new circular from the People's Bank of China (PBoC) that now explicitly bans real-world asset (RWA) tokenization, cryptocurrency advertising, and even providing network traffic for crypto-related activities.

The new regulations, signed by eight government agencies including the Ministry of Industry and Information Technology (MIIT) and the Ministry of Public Security, represent a significant escalation in China's ongoing campaign against digital currencies. The circular specifically targets offshore tokenization of domestic assets and rights unless explicitly approved by regulated bodies.

The expanded ban places substantial new obligations on internet companies operating in China. According to the document, "Internet companies must not provide services such as online business venues, commercial displays, marketing promotions, or paid traffic-diversion for activities related to virtual currencies or real-world asset tokenization."

This represents a major shift in enforcement strategy. Rather than simply prohibiting cryptocurrency trading and mining, the new regulations require internet providers to actively police their platforms. When companies discover "clues indicating illegal or non-compliant activities," they must promptly report them to authorities and provide technical support for investigations.

The coordination between multiple agencies marks another significant development. The PBoC, MIIT, and Ministry of Public Security are now explicitly tasked with working together to enforce the circular. This multi-agency approach suggests the Chinese government views cryptocurrency activities as a serious threat requiring comprehensive enforcement.

The circular also makes clear that participants in cryptocurrency and RWA token markets will not receive civil legal protections. The government promises to "crack down on fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other crimes involving virtual currencies or real-world asset tokenization."

This expansion appears to be a direct response to users exploiting loopholes in the 2021 restrictions. Despite previous bans on cryptocurrency trading and mining, Chinese citizens found ways to participate in digital asset markets through offshore exchanges and decentralized platforms. The new regulations aim to close these gaps by targeting the entire ecosystem that supports cryptocurrency activities.

The timing of this announcement is particularly noteworthy given the global rise of RWA tokenization. Major financial institutions worldwide have been exploring ways to bring real-world assets like real estate, commodities, and securities onto blockchain platforms. China's blanket ban on the practice, even when conducted offshore, positions the country as an outlier in the evolving digital asset landscape.

For China's domestic blockchain industry, the implications are severe. While the government has promoted blockchain technology for supply chain management and other enterprise applications, this new circular effectively criminalizes most commercial blockchain use cases that involve tokenization or digital assets. Companies developing blockchain solutions must now carefully navigate these restrictions to avoid running afoul of the expanded regulations.

The telecommunications angle is particularly significant. MIIT's involvement means that internet service providers and telecommunications companies could face penalties for inadvertently facilitating crypto-related traffic. This could lead to increased network monitoring and filtering, potentially affecting internet speeds and accessibility for legitimate services that might be mistaken for crypto-related activities.

From a market perspective, this move reinforces China's commitment to maintaining strict capital controls and preventing capital flight through digital channels. The government has long been concerned about citizens moving money out of the country through various means, and cryptocurrencies represented a particularly challenging threat to these controls due to their borderless nature.

However, the effectiveness of these expanded restrictions remains to be seen. Previous bans on cryptocurrency trading and mining did not eliminate these activities entirely, as underground markets and offshore solutions continued to serve Chinese users. The new regulations may simply push these activities further underground or drive them to more sophisticated evasion techniques.

The international implications are also significant. As other countries grapple with how to regulate cryptocurrencies and RWA tokenization, China's hardline approach provides a stark contrast to more permissive regulatory frameworks emerging in places like Singapore, Switzerland, and parts of the United States. This divergence could influence where blockchain innovation and digital asset businesses choose to locate in the coming years.

For investors and businesses operating in or with China, these expanded restrictions create substantial uncertainty. The broad language of the circular leaves room for interpretation, and the involvement of law enforcement agencies suggests that violations could result in criminal penalties rather than just regulatory fines. Companies must now conduct thorough compliance reviews of any blockchain or digital asset initiatives to ensure they don't fall afoul of the new restrictions.

The expansion of China's crypto crackdown represents one of the most comprehensive attempts by any government to eliminate digital asset activities within its borders. As the global digital asset industry continues to evolve, China's approach stands as a unique experiment in complete prohibition, with outcomes that will be closely watched by policymakers and industry participants worldwide.