The Shenzhen branch of the central bank published plans stating that it would bring some 11 companies into line with regulation, according to reports.
The digital yuan is not a digital currency like Bitcoin, but a virtual fiat currency issued and controlled by the People's Bank of China.
Luohu district in Shenzhen will distribute 50,000 digital ‘red packets’, each containing 200 yuan ($29.7) in a lottery.
Beijing has been named as the top blockchain city in the 2020 Chinese Blockchain Innovation rankings.
Beijing has joined Shenzhen in implementing blockchain invoicing as it seeks to increase transparency, reduce the associated costs and increase convenience.
Eight companies were brought in for questioning by local regulators, each suspected of previously offering services that are now illegal.
Tencent has developed a tool that allows the Chinese government to screen financial transactions for any illegal crypto activity.