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Chinese tech giants have suspended plans to issue stablecoins in Hong Kong after the Chinese government expressed concerns about the rise in private sector-controlled currencies.
Over the summer, companies including Alibaba-backed Ant Group and e-commerce group JD.com announced they would participate in Hong Kong’s stablecoin pilot program or issue crypto-backed products such as tokenized bonds.
But they are putting their stablecoin ambitions on hold after being told not to proceed by Chinese regulators, including the People’s Bank of China (PBoC) and the Cyberspace Administration of China (CAC), according to people familiar with the situation.
People’s Bank of China officials recommended against participating in the initial stablecoin rollout due to concerns about allowing tech companies and securities firms to issue any type of currency, five people familiar with the matter said.
A person familiar with the central bank’s briefings with tech groups said the issuance of privately run stablecoins is also seen as a challenge to the central bank’s digital currency project, e-CNY.
“The real regulatory concern is who has the ultimate right to create money – the central bank or the private companies in the market?” said another.
A stablecoin is a digital token pegged to a fiat currency, such as the US dollar, and is the basis for cryptocurrency trading.
The pushback from Chinese authorities highlights how regulators around the world are responding to the rise of stablecoins, especially after the Trump administration championed them as a pillar of mainstream finance and a way to project the dominance of the U.S. dollar.
The European Central Bank said the proliferation of dollar stablecoins could hinder its ability to control monetary policy.
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The Hong Kong Monetary Authority, the region’s de facto central bank, began accepting applications from stablecoin issuers in August, establishing itself as the mainland’s testing ground.
Interest in the Hong Kong program grew in China over the summer, with some officials suggesting that a renminbi-denominated stablecoin could facilitate international use of the currency.
In June, Zhu Guangyao, a former vice minister of finance of China, asserted that “the strategic purpose of the United States’ promotion of stablecoins is to maintain the hegemony of the dollar,” and argued that it is important for China to respond to its financial challenges by developing stablecoins pegged to the renminbi.
“We should make the most of Hong Kong’s pilot program,” Zhu said at a forum in Beijing in June. “Renminbi stablecoins need to be integrated into the overall design of national fiscal strategies.”
But financial regulators are taking a more cautious approach following a speech by former People’s Bank of China Governor Zhou Xiaochuan in late August, two people familiar with the tech group’s plans said.
At a private financial forum in Beijing in July, Zhou urged a thorough assessment of stablecoins and the potential systemic risks they pose.
“We need to be wary of the risk of stablecoins being used excessively for asset speculation, as the wrong direction could lead to fraud and financial system instability,” Zhou told the China Finance 40 forum, according to an article later published by the state-run think tank.
Chou urged “careful assessment of the true demand for tokenization as a technology foundation.”
He added: “While many believe that stablecoins will reshape the payment system, the reality is that there is little room for cost reduction in the current system, especially in retail payments.”
The People’s Bank of China declined to comment. The HKMA said it does not comment on market rumors. CAC, Ant and JD.com did not respond to requests for comment.
