China's Stablecoin Crackdown: Regulators Weigh Innovation Against Financial Stability

China's regulators have stepped up scrutiny of stablecoin initiatives in Hong Kong, with the People's Bank of China (PBOC) reportedly halting mainland firms' efforts to launch stablecoins in the financial hub. The move, which includes targeting banks and non-bank payment service providers, reflects broader concerns about the risks of unregulated digital assets amid a surge in global stablecoin adoption, according to a South China Morning Post report.

The PBOC and Cyberspace Administration of China have directed companies such as Ant Group and JD.com to pause their stablecoin projects, according to the South China Morning Post. This intervention comes as Hong Kong has emerged as a key player in the digital asset space since 2022, allowing the sector to develop with relative freedom. However, regulators are now seeking to temper the rapid growth of stablecoins and real-world asset (RWA) tokenisation, which have raised concerns about financial stability and cross-border capital flows.

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Globally, stablecoin usage is expanding beyond crypto trading to real-world payments, though high fees remain a persistent challenge. New Artemis data, from a New York-based blockchain analytics firm, reveals $136 billion in stablecoin payments from 33 firms between January 2023 and August 2025. B2B transactions dominate, accounting for $76 billion annually, followed by peer-to-peer (P2P) and card-linked payments. Tether's USDT holds 85% of the market, primarily on the Tron blockchain, while Circle's USDC trails behind. Despite growth, Artemis highlights that fees—especially on exchanges and for conversions—can erode the cost advantages of stablecoins; for instance, Ethereum network congestion has driven fees past $1,000 for small transactions, as noted by Shark Tank judge Kevin O'Leary.

Meanwhile, Kyrgyzstan has launched its own stablecoin, KGST, pegged 1:1 to the som, in collaboration with Binance founder Changpeng Zhao. The Central Asian nation also announced plans to pilot a Central Bank Digital Currency (CBDC) in three phases, starting with internal transfers and progressing to offline payments, according to a TradingView article. The KGST stablecoin aims to facilitate international settlements without relying on traditional fiat currency conversions and is expected to integrate with the digital som in the future. That article also notes over $10 billion in crypto exchange volume was processed in Kyrgyzstan during the first half of 2025, marking a 47% year-on-year increase.

Experts argue that China's regulatory actions in Hong Kong do not signal a retreat from digital assets overall. Despite the pause, the country remains competitive with the U.S. in the digital asset space, with officials emphasizing long-term strategic goals, as reported by the South China Morning Post. The PBOC's directive underscores a balancing act: fostering innovation while managing risks in a rapidly evolving market. As stablecoins and CBDCs gain traction globally, regulators face the challenge of ensuring stability without stifling technological progress.