HK’s stablecoin signals China’s changing digital asset stance

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One of Hong Kong’s top financial regulators recently held a meeting focused on stablecoin risks and opportunities, which, according to experts, signals a gradual shift in China’s anti-digital asset stance.

The meeting by the Shanghai State-owned Assets Supervision and Administration Commission (SASAC) included over 60 government officials, policymakers, and digital asset industry leaders, sources told Reuters.

Stablecoins were at the top of the agenda at a time when the sector recorded explosive growth and mainstream attention. These fiat-pegged tokens are now a $260 billion market with over $200 billion in daily trading volume.

He Qing, the SASAC director, told the attendees that the city-state needs to have “greater sensitivity to emerging technologies and enhanced research into digital currencies.”

A policy expert from China’s largest securities brokerage, Guotai Haitong Securities, discussed recent stablecoin growth, their opportunities and risks, and analyzed some of the regulatory approaches various jurisdictions have pursued, SASAC revealed in a WeChat post. The policy expert also offered recommendations to boost the development and adoption of stablecoins and other digital currencies.

According to experts, this continued exploration of stablecoins by mainland Chinese companies indicates that the Asian superpower could finally be warming up to digital assets.

Some believe that if China gives the green light to stablecoin exploration, it will likely be limited to Shanghai, the country’s financial hub, where the government has traditionally piloted new regulatory approaches.

China’s delicate stablecoin balance act

For China, stablecoins are a double-edged tool that promises to boost the yuan’s global competitiveness but threatens the country’s longstanding conservative financial approach.

Despite being the world’s second-largest economy, China’s yuan has failed to gain ground in global trade, accounting for less than 3% of international transactions. Stablecoins present a fresh threat to the yuan’s global position, with over 95% backed by U.S. dollars.

“For China, ignoring this trend risks being left behind in the digital infrastructure race—especially as stablecoins increasingly function as bypass mechanisms to traditional banking networks,” Morgan Stanley said in a recent note.

Launching a yuan-pegged stablecoin could allow China to compete in the digital realm, even as its digital yuan central bank digital currency (CBDC) stalls. Sources at JD.com and Ant told Reuters that they have been cautiously pushing stablecoins as one of the best ways to promote the globalization of the yuan.

Experts have suggested Hong Kong as the perfect testing ground for such a stablecoin, as it insulates China from the direct risks. The city also has a far more advanced regulatory framework.

“Hong Kong has an offshore market for the renminbi, and if the offshore market develops, it is possible to create a stablecoin pegged to the offshore RMB in Hong Kong in the future,” stated Huang Yiping, an adviser to the People’s Bank of China.

China can’t sit still

One of the biggest hurdles to developing a stablecoin in China is the country’s tight capital controls. The PBoC limits the ability of Chinese firms and individuals to move money in and out of the country, with the buying and selling of foreign currencies also strictly regulated.

And yet, China can’t afford to sit still. Some reports estimate that stablecoins will eclipse $400 billion in market cap this year, with Citi (NASDAQ: C) predicting that the sector will hit $1.6 trillion by 2030 in a base-case scenario and up to $3.7 trillion in a bull case.

“China has reached a point where it can no longer avoid taking action,” stated Xiao Feng, the chairman of HashKey, one of the 11 regulated exchanges in Hong Kong.

According to Feng, Chinese traders already use USD-pegged stablecoins to make payments globally. Crypto HK, the city’s largest over-the-counter digital currency exchange, concurs, noting that the monthly trading volume of USD stablecoins by its Chinese clientele has surged fivefold since 2021.

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