China Classifies RWA as Illegal Finance, Warning Both Domestic and Overseas Operators

Author | Liu Honglin

Compiled by WuBlockchain

Source:

https://mp.weixin.qq.com/s/2ke6qmBrsjXGlbxmIc4JuA

No one knows why, but recently all the crypto-industry-related policy documents seem to prefer being released on Fridays.

Just moments ago, a joint “Risk Warning on Preventing Illegal Activities Involving Virtual Currencies” issued by seven major financial industry associations suddenly spread across attorney Honglin’s WeChat Moments. The document is co-signed by the National Internet Finance Association of China, the Banking Association, the Securities Association, the Asset Management Association, the Futures Association, the Listed Companies Association, and the Payment & Clearing Association.

After reading it, attorney Honglin was completely stunned.

This is not an ordinary industry-association statement — this is a clear cross-industry, cross-regulatory-system “unified stance (or unified eradication)” action. A combination of associations at this level usually appears only at major moments of systemic financial-risk prevention.

It naturally raises the question: is RWA really so destructive?

The most eye-catching aspect of this document is that RWA (Real-World Asset Tokenization) is mentioned explicitly for the first time, accompanied by a clear regulatory definition. In the full text, RWA is listed alongside stablecoins, worthless tokens (“air coins”), and mining as one of the main manifestations of “illegal activities related to virtual currencies.” In other words, it has been explicitly named and criticized.

The wording itself is a strong signal: RWA is no longer treated as a “new technology awaiting regulatory clarification” but is directly categorized as a “risky business model” subject to regulatory crackdown.

Specifically, the document describes RWA in the following way:

“Real-world asset tokenization involves financing and trading activities carried out through the issuance of tokens or other rights or debt certificates with token-like characteristics. It carries multiple risks, including risks of fraudulent assets, operational failure, and speculative hype. At present, no real-world asset tokenization activities have been approved by China’s financial regulatory authorities.”

This statement clearly draws three regulatory red lines:

First, RWA is explicitly defined as a “financing and trading activity.” This means that regardless of whether real assets are used as anchors or blockchain technology is involved, its essence is still a fundraising mechanism. As long as it involves token issuance, asset transactions, or interest distribution, it naturally falls within the scope of existing financial regulation — especially that prohibited under the Securities Law and the “Regulations on Banning Illegal Financial Institutions and Illegal Financial Business Activities.”

Second, regulators highlight the risks of “fraudulent assets,” “operational failure,” and “speculative hype.” This is not merely a judgment against fraudulent projects; it is also an inherent negation of market risks within so-called “legitimate projects.” Even if a project believes its assets are real, its technology transparent, and its structure compliant, regulators still conclude that token structures cannot guarantee legal ownership or enforceable claims on underlying assets, and that their risk spillover is uncontrollable.

Third — and most critically — the document states:

“China’s financial regulatory authorities have not approved any real-world asset tokenization activities.”

This amounts to declaring that all RWA-branded tokenized assets, services, intermediaries, and trading platforms currently in the market lack any legal basis for operation. There is no “regulatory exploration phase,” nor any possible path toward “future filing or approval.”

In practice, RWA has been treated within the industry as an “alternative tokenization path” for quite some time. Especially after stablecoins were formally brought into the virtual-currency regulatory framework, many teams pivoted toward RWA, attempting to use terms like “real-asset backing,” “offshore compliance,” and “technology-service output” to bypass regulatory scrutiny. This document dismantles these arguments one by one.

The document explicitly states that RWA-related activities carry risks of “illegal fundraising, unauthorized public securities issuance, and illegal futures business operations.” These are not casual warnings — they correspond directly to clearly defined violations in China’s Criminal Law and Securities Law:

● If you issue RWA tokens to the general public and raise funds, you may be guilty of illegal fundraising;

● If you facilitate trading or distribute tokens without approval, you may be committing illegal securities issuance;

● If your token trading involves leverage or wagering mechanisms, you may be engaging in illegal futures business.

These offenses are already well-established in law, and several court rulings in recent years have applied the same logic. RWA is not a legal grey area — it has been firmly placed within the existing financial-enforcement toolbox.

This risk warning is issued at this moment largely because scams exploiting the “RWA” label have recently surged. Attorney Honglin was previously invited to speak on Shanghai People’s Radio on the topic “Preventing RWA Financial Scams.” Unexpectedly, this topic has now escalated to the national level.

In the very first paragraph, the document notes:

“Criminals take advantage of the situation to hype trading activities, using the banners of stablecoins, worthless tokens (such as Pi Coin), real-world asset (RWA) tokens, and ‘mining’ to conduct illegal fundraising and pyramid-scheme fraud.”

It is clear that regulators now evaluate RWA at the same risk level as air coins and pyramid schemes, reflecting the actual frequency and harmful impact of cases observed in enforcement.More importantly, this notice emphasizes joint liability for service providers and intermediaries. It states:

“Domestic staff of overseas virtual-currency or real-world-asset token service providers, as well as domestic institutions or individuals who knowingly or should have known of such virtual-currency-related activities yet still provide services, will be held legally accountable.”

This sentence carries enormous implications and deserves close attention.

First, this applies not only to project teams but to all ecosystem service providers — including project consultants, tech outsourcers, marketing agents, KOL promoters, payment integrators, and more.

Second, “knowingly or should have known” is a legal presumption — not limited to explicit intent. As long as there is reasonable basis to deem awareness, liability can be established.

Third, it directly negates the common Web3 operational model of “offshore entity + mainland staff.” Even if your company is registered offshore, if your team operates in mainland China, you are still considered to be “providing services domestically.”

In other words, there is no such thing as “pure tech companies are safe” or “I only build infrastructure.”If you know a project is engaging in RWA in China and still provide services, you can be held liable.

This means that the entire Web3 service chain surrounding RWA is effectively terminated inside China. Not only can projects no longer operate — their supporting service ecosystem no longer has a viable business model. Any team wanting to pursue RWA in the future has only one option: fully relocate offshore. Every component — from legal structure to asset custody, user acquisition, compliance audits, and financial services — must be completely detached from China. Any domestic connection, even hiring one operations staff member in China, may trigger legal risks.

Currently, some projects are still trying to argue for policy space from a “technological innovation” angle, highlighting on-chain settlement efficiency, transparency of asset flows, or claiming that KYC integration or multi-layer audit structures could mitigate risks. But regulators’ message this time is unequivocal: this is not a technology issue, nor a mechanism issue — real-world financial risks overwhelmingly outweigh any technological benefit. The document contains no mention of “technical pilots,” “tiered regulation,” or “prudential development.” This clearly shows that the regulatory goal is not to optimize RWA — it is to exclude it entirely from the legal landscape.

This is not a tightening — it is a categorical rejection of the entire direction.It dismantles the fundamental assumption underlying the RWA model: whether through SPV structures to distribute tokens or smart contracts to manage rights, as long as the structure involves “financing + trading,” it cannot escape the definition of illegal financial activity. Projects that continue to recruit “node partners,” “regional representatives,” or marketers in WeChat groups, Telegram, or X (Twitter) are no longer considered “exploratory” — they fall directly within the scope of illegal activity.

For teams operating inside China, this means that the entire RWA narrative — from asset providers, to tech development, to market facilitation, to consulting, outsourcing, and promotional services — no longer has any sustainable business logic. Any part of the chain with a China nexus constitutes potential legal risk.

For overseas projects, the situation is not much better. Mainland China is no longer a “jurisdiction awaiting regulatory clarity” — it is one that has explicitly rejected RWA. Not paused, not undecided, not temporarily restricted — explicitly excluded.

Given this landscape, the choices for industry participants are crystal clear: Either completely relocate the business to a jurisdiction with an independent, compliant regulatory system, or abandon RWA entirely.

Follow us
Twitter: https://twitter.com/WuBlockchain
Telegram: https://t.me/wublockchainenglish