China is intensifying its crackdown on stablecoin promotion, research, and seminars, signaling a reinforced stance against the digital asset class despite growing global interest and activity. Financial regulators have reportedly instructed local brokerages and research bodies to halt publishing studies or hosting seminars that promote stablecoins. This move aims to curb potential risks and limit the surge of interest in stablecoins among domestic investors.

The regulatory guidance was issued in late July and early August to leading firms, urging them to cancel stablecoin-related events and cease disseminating related research. Authorities are concerned that these tokens could be exploited for fraudulent activities within mainland China. The concern is that too much excitement could trigger a "herd rush" into risky investments. Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp, noted that policymakers are wary of investors piling into assets without fully understanding the risks.

This crackdown comes despite renewed speculation about China's overall stance on digital assets. Recent official comments and Hong Kong's rollout of new legislation for stablecoin issuers have fueled speculation that China might be softening its position. However, mainland China still maintains a blanket ban on crypto-related transactions. Authorities have expressed support for Hong Kong's ambition to become a digital asset hub, attracting interest from mainland firms.

Despite the ban, over-the-counter (OTC) crypto trading remains active in China. Chainalysis estimates that OTC volumes reached $75 billion in the first nine months of 2024. This indicates a persistent demand for digital assets within the country, even amidst regulatory restrictions.

In early July, Shenzhen authorities issued warnings about scams disguised as stablecoin investments, reflecting a nationwide increase in consumer alerts. The Shenzhen Municipal Task Force for Preventing and Combating Illegal Financial Activities cautioned that crypto-related terms like stablecoins were being misused for malicious purposes. They warned that unauthorized entities were exploiting the buzz around potential yuan-backed digital assets to promote shady investment schemes and illegal fundraising events. The government stressed that any organization offering investment services involving stablecoins must be licensed by China's financial regulators.

While mainland China tightens its grip, Hong Kong is taking a different approach. On August 1, Hong Kong's new stablecoin law came into effect, establishing a regulatory framework for stablecoin issuers. This legislation introduces a licensing mechanism, requiring any entity issuing fiat-backed stablecoins in Hong Kong (or those pegged to the Hong Kong dollar) to secure a license from the Hong Kong Monetary Authority (HKMA). This move is part of Hong Kong's broader strategy to position itself as a global digital asset hub.

The contrasting approaches between mainland China and Hong Kong highlight the complex regulatory landscape surrounding digital assets. While China is focused on preventing fraud and speculation, Hong Kong aims to foster innovation and attract crypto businesses. This divergence is occurring even as Chinese policymakers have been more openly discussing stablecoins, with People's Bank of China (PBOC) governor Pan Gongsheng acknowledging the challenges posed by digital currencies to financial regulation. A Shanghai regulator even held a meeting last month to consider strategic responses to the rise of stablecoins and digital currency, signaling a potential shift in tone, though details of the meeting were later removed from the Shanghai State-owned Assets Supervision and Administration Commission's official WeChat account.

The global stablecoin market has experienced rapid growth, prompting regulators worldwide to assess the potential impacts on monetary policy, inflation, and the banking system. While China is taking a cautious approach, other regions, like the United States, are exploring regulatory support. President Trump recently signed America's first federal stablecoin legislation, the GENIUS Act, into law.