China's Crypto Policy Shifts: From ICO Ban to Yuan-Backed Stablecoin Ambitions

China’s digital asset regulatory landscape has undergone a seismic shift over the past decade. In 2017, the country’s sweeping ban on initial coin offerings (ICOs) and domestic cryptocurrency exchanges sent shockwaves through the global crypto market, effectively stifling decentralized innovation [2]. Fast forward to 2025, and the narrative has flipped: China is now actively exploring yuan-backed stablecoins as a tool to elevate the global profile of its currency and challenge the dominance of U.S. dollar-backed stablecoins. This policy pivot—from suppression to strategic experimentation—has profound implications for investors navigating the intersection of geopolitics, blockchain, and monetary sovereignty.

The 2017 ICO Ban: A Decade of Suppression

In 2017, China’s State Council cracked down on ICOs, deeming them a threat to financial stability and investor protection [2]. At the time, ICOs had become a primary fundraising mechanism for blockchain startups, with Chinese projects accounting for over 40% of global ICO volume [4]. The ban, coupled with the closure of domestic exchanges, crippled the local crypto ecosystem and forced entrepreneurs to pivot to offshore markets. While the move curtailed speculative frenzies, it also stifled innovation, leaving China lagging behind jurisdictions like Singapore and the U.S. in blockchain development [5].

The 2017 ban was emblematic of China’s broader approach to digital assets: prioritize financial stability over technological experimentation. By 2021, the country had escalated restrictions, banning cryptocurrency mining and trading entirely [4]. This zero-tolerance stance was rooted in concerns over capital flight, speculative bubbles, and the erosion of monetary sovereignty. Yet, as the global stablecoin market exploded—dominated by U.S. dollar-backed tokens like USDT and USDC—China’s absence from the space became a strategic vulnerability [3].

Yuan-Backed Stablecoins: A Calculated Counteroffensive

China’s recent pivot to yuan-backed stablecoins marks a dramatic reversal. The State Council is now reviewing a roadmap to approve these tokens, with Hong Kong and Shanghai leading the charge [1]. Hong Kong’s Stablecoins Ordinance, effective August 1, 2025, mandates 100% reserve backing for CNH-pegged tokens and requires licensing by the Hong Kong Monetary Authority (HKMA) [1]. Meanwhile, Shanghai is integrating these stablecoins with its digital yuan (e-CNY) infrastructure, creating a hybrid system that bridges traditional and digital finance [1].

This strategy is not merely about catching up—it’s about redefining the rules of the game. By anchoring stablecoins to the yuan, China aims to:
1. Expand the yuan’s global footprint: Currently at 2.88% of global payments, the yuan’s share could rise as stablecoins facilitate cross-border trade, particularly in Belt and Road Initiative (BRI) nations [1].
2. Undermine U.S. dollar dominance: The U.S. dollar-backed stablecoin market holds 99% of the global market share [3], a position China views as a threat to its financial sovereignty, especially with the U.S. passing the GENIUS Act to legitimize bank-issued dollar-backed stablecoins [6].
3. Test controlled innovation: Unlike the 2017 ban, which stifled all decentralized activity, yuan-backed stablecoins are being rolled out in a regulated, state-sanctioned framework. This allows China to experiment with blockchain while maintaining tight control over capital flows [4].

Private-sector players are already capitalizing on this shift. Conflux’s AxCNH, built on a high-speed blockchain, targets BRI markets by 2026 [1], while PetroChina is using stablecoins to reduce exchange rate risks in energy trade settlements [5]. These initiatives suggest a dual strategy: test stablecoins in offshore markets while preserving domestic financial stability.

Investment Implications: Opportunities and Risks

For investors, China’s policy shift opens a new frontier. The yuan-backed stablecoin market is projected to reach $2 trillion by 2028, driven by adoption in energy, infrastructure, and retail trade [1]. Key opportunities include:
- Infrastructure providers: Firms like Conflux and AnchorX, which are building the blockchain infrastructure for yuan-backed stablecoins, could see exponential growth as demand surges.
- BRI-aligned markets: Countries participating in China’s Belt and Road Initiative may become early adopters of yuan-backed stablecoins, creating a captive market for cross-border trade.
- Regulatory arbitrage: Hong Kong’s licensing framework offers a sandbox for compliant stablecoin projects, attracting global capital seeking access to China’s vast market.

However, risks remain. China’s strict capital controls and the yuan’s limited convertibility could hinder adoption. Additionally, the U.S. and its allies may respond with retaliatory measures, such as sanctions or regulatory barriers, to protect the dollar’s dominance [6]. Investors must also contend with the geopolitical volatility of the BRI, where local pushback and infrastructure failures could derail stablecoin adoption.

Strategic Lessons for Investors

China’s journey from ICO ban to stablecoin ambition underscores a critical lesson: regulation is not a barrier but a tool. The 2017 ban was a blunt instrument to suppress risk, while the current stablecoin strategy reflects a nuanced, long-term vision. For investors, the key is to align with projects that operate within China’s regulatory framework while leveraging its geopolitical and economic heft.

The yuan-backed stablecoin market is still in its infancy, but its potential is undeniable. As former PBOC Governor Zhou Xiaochuan warned, dollar-backed stablecoins pose systemic risks to China’s financial system [5]. By creating a state-sanctioned alternative, Beijing is not just competing in the stablecoin race—it’s redefining it.

Source:
[1] China's Yuan-Backed Stablecoin Initiative and Its [https://www.bitget.com/news/detail/12560604941070]
[2] China and Cryptocurrency [https://freemanlaw.com/cryptocurrency/china/]
[3] A Compendium of Cryptocurrency Important Milestones [https://www.bitget.com/price/gold/news]
[4] Crypto Regulations in China Statistics 2025: Real Trends [https://coinlaw.io/crypto-regulations-in-china-statistics/]
[5] China's PetroChina Explores Stablecoin Use for Energy [https://coincentral.com/china-petrochina-explores-stablecoin-use-for-energy-cross-border-payments/]
[6] How will the GENIUS Act work in the US and impact [https://www.weforum.org/stories/2025/07/stablecoin-regulation-genius-act/]