PRC News: Circular No. 42 and Real-World Asset (RWA) tokenization

On 6 February 2026, the People’s Bank of China, together with seven other PRC authorities, issued Notice No. 42 concerning the prevention and disposal of risks relating to virtual currencies and related activities. On the same day, the China Securities Regulatory Commission (“CSRC”) issued regulatory guidelines, together with related working instructions, addressing the offshore issuance of asset-backed securities tokens backed by domestic assets. The English names used in this note are unofficial translations.

The 2026 framework maintains the PRC’s strict position against virtual-currency-related activities and onshore RWA tokenisation in mainland China, while introducing a more explicit supervisory framework for certain offshore issuances backed by domestic assets. The regime is likely to continue developing through implementation and supervisory practice, and any proposed structure should be assessed on a case-by-case basis.

Key regulatory position:

1. Virtual currencies do not have the status of legal currency

PRC authorities reaffirm that virtual currencies do not have the legal status of fiat currency and may not circulate or be used as currency in the market within mainland China.

2. Virtual-currency-related activities in mainland China remain prohibited

Activities such as token issuance financing, trading, exchange, pricing, intermediation, and the provision of related technical or support services remain characterised as illegal financial activities when conducted within mainland China.

3. Onshore RWA tokenisation remains prohibited

The 2026 framework indicates that RWA tokenisation conducted within mainland China, and the provision of related intermediary or technical services, remain prohibited unless carried out through specifically approved infrastructure or under express regulatory authorisation.

Accordingly, the baseline position remains that token issuance, trading, or service provision involving RWA structures within China is not permitted in the ordinary course.

4. Offshore issuance involving domestic assets

Offshore structures may still fall within PRC regulatory scrutiny where they are substantively connected to domestic entities, domestic assets, or offshore vehicles under domestic control. The framework appears to contemplate a regulated structure for certain offshore arrangements involving:

• tokens structured in a manner resembling offshore debt issuance;

• tokenised structures based on domestic ownership interests or income rights with securitisation-like or equity-like features; and

• other tokenised rights or interests linked to domestic assets.

Asset-Backed Securities Tokens

The CSRC materials focus on a narrower category: offshore issuance of asset-backed securities tokens backed by domestic assets. These are described as tokens supported by cash flows generated by domestic assets or related asset rights, using encryption technology, distributed ledger technology, or similar technologies.

This appears to be the category for which the clearest compliance pathway has been articulated to date, although the practical scope of the category may still depend on regulatory interpretation in specific cases.  The CSRC framework contemplates a filing-based regime supported by regulatory review and ongoing supervision. The filing package is expected to include:

· a filing report;

· a PRC legal opinion; and

· a complete set of issuance documents.

There are continuing obligations to report actual issuance, material risks, and major events. In addition, relevant projects should consider cross-border compliance issues at an early stage, including:

· outbound investment requirements;

· foreign exchange and cross-border RMB matters;

· cybersecurity and data security;

· sector-specific restrictions; and

· asset eligibility and negative-list considerations.

This should not be understood as a general permission for offshore tokenisation involving China, but rather as a more explicit framework for a limited category of structures subject to filing, review, and ongoing supervision.

Practical implications

Any domestic enterprise considering offshore tokenisation involving domestic assets should proceed on the basis of:

• careful asset due diligence;

• early legal classification of the proposed structure;

• review of cross-border regulatory requirements; and

• robust internal governance and ongoing reporting arrangements.

Disclaimer: This publication provides information on and material containing matters of interest produced by Cascade Capital Limited. The material in this publication is provided only for your information and does not constitute legal or other advice on any specific matter. Readers should seek specific advice as appropriate before acting on the information contained in this publication.