Stablecoin Risks and Regulatory Responses in China: Implications for Global Digital Asset Markets

China’s approach to stablecoins in 2025 reflects a delicate balancing act between fostering innovation and mitigating systemic risks. As global markets grapple with the rise of dollar-backed stablecoins, Beijing’s cautious yet strategic regulatory framework—coupled with its exploration of yuan-backed alternatives—has significant implications for the future of digital asset markets. This article examines the systemic risks identified by Chinese regulators, the evolving regulatory landscape, and the geopolitical stakes in a world where stablecoins could redefine cross-border finance.

Systemic Risks: A Cautionary Lens

Chinese regulators, led by former PBOC Governor Zhou Xiaochuan, have consistently emphasized the potential for stablecoins to destabilize financial systems. Zhou warned that stablecoins could be “excessively used for speculative asset trading,” creating vulnerabilities to fraud and systemic instability [1]. His concerns are rooted in the “multiplier effect” of stablecoin issuance: even fully backed reserves could amplify risks through leveraged operations like loans and revaluations, potentially triggering cascading failures akin to a bank run [2].

The PBOC also highlights the threat of dollar-backed stablecoins circumventing China’s capital controls. These instruments, which combine the dollar’s liquidity with blockchain’s programmability, could enable unregulated cross-border transactions, undermining Beijing’s ability to manage capital flows and preserve monetary sovereignty [3]. This risk is compounded by the fact that stablecoins—unlike China’s own digital yuan (e-CNY)—operate outside the central bank’s direct oversight, creating a parallel financial infrastructure that could erode trust in local monetary policy [4].

Regulatory Vigilance: A Dual Approach

China’s regulatory response has been bifurcated. On the mainland, stablecoin research and seminars have been banned to curb speculative activities and capital flight [5]. In contrast, Hong Kong has adopted a more controlled approach. The Stablecoins Ordinance, effective August 1, 2025, mandates 100% reserve backing, anti-money laundering (AML) compliance, and licensing for issuers [6]. This framework positions Hong Kong as a bridge between China’s e-CNY and global stablecoins, enabling controlled experimentation while aligning with international standards.

The PBOC, meanwhile, is exploring pilot projects in offshore RMB markets before formalizing a national policy [7]. This phased strategy allows regulators to assess risks without stifling innovation entirely. However, the absence of a unified mainland framework underscores Beijing’s prioritization of stability over rapid adoption. As Zhou noted, China’s existing digital payment systems—led by Alipay and WeChat Pay—are already efficient and low-cost, leaving little room for stablecoins to add value [8].

Yuan-Backed Stablecoins: A Strategic Gambit

Despite these cautionary stances, China is quietly advancing plans for yuan-backed stablecoins. The State Council is reviewing a roadmap to launch such instruments, aiming to challenge the dominance of U.S. dollar stablecoins and bolster the yuan’s internationalization [9]. These stablecoins could facilitate cross-border trade settlements, particularly in Belt and Road Initiative (BRI) corridors, reducing reliance on dollar-centric systems like SWIFT [10].

The geopolitical implications are profound. By introducing yuan-backed stablecoins, China seeks to diversify global currency reserves and weaken the dollar’s hegemony in digital finance. However, structural hurdles remain. Strict capital controls and the yuan’s limited convertibility could constrain the free circulation of these tokens, limiting their global utility [11]. Private-sector players like JD.com and Ant International are already testing the waters in Hong Kong’s regulated ecosystem, but widespread adoption will depend on regulatory clarity and international trust [12].

Conclusion: Innovation vs. Control

China’s stablecoin strategy exemplifies the tension between innovation and systemic risk management. While the PBOC and its regulators remain wary of the destabilizing potential of stablecoins, the push for yuan-backed alternatives signals a long-term ambition to reshape global financial infrastructure. For investors, the key takeaway is clear: the future of stablecoins will be defined not just by technological innovation, but by the regulatory frameworks that govern them. As China navigates this complex landscape, its actions will have ripple effects across global markets, influencing everything from cross-border trade to the balance of monetary power.

Source:
[1] Former China central bank governor urges caution amid stablecoin frenzy [https://www.scmp.com/economy/china-economy/article/3323414/former-china-central-bank-governor-urges-caution-amid-stablecoin-frenzy]
[2] Ex-PBOC Chief Warns of Stablecoin Crisis – Run Risk Echoes [https://finance.yahoo.com/news/ex-pboc-chief-warns-stablecoin-193322231.html]
[3] Why China Is Spooked by Dollar Stablecoins and How It Will Respond [https://www.cfr.org/article/why-china-spooked-dollar-stablecoins-and-how-it-will-respond]
[4] [Big read] Stablecoins are reshaping global finance [https://www.thinkchina.sg/economy/big-read-stablecoins-are-reshaping-global-finance-can-china-keep]
[5] Navigating China's Stablecoin Regulatory Tightrope [https://www.ainvest.com/news/navigating-china-stablecoin-regulatory-tightrope-systemic-risks-investor-preparedness-2508/]
[6] Hong Kong's Stablecoins Bill and Its Implications [https://www.china-briefing.com/news/hong-kongs-stablecoin-bill-what-it-means-and-why-it-matters/]
[7] [Big read] Stablecoins are reshaping global finance [https://www.thinkchina.sg/economy/big-read-stablecoins-are-reshaping-global-finance-can-china-keep]
[8] Former PBOC Chief Zhou Pushes Back Against China Stablecoin Idea [https://www.bloomberg.com/news/articles/2025-08-27/former-pboc-chief-zhou-pushes-back-against-china-stablecoin-idea]
[9] China considering yuan-backed stablecoins to boost global currency usage [https://www.reuters.com/business/finance/china-considering-yuan-backed-stablecoins-boost-global-currency-usage-sources-2025-08-21/]
[10] China considers legalising yuan-backed stablecoins: reports [https://aibc.world/news/china-seeks-to-approve-yuan-backed-stablecoins/]
[11] China considers Yuan stablecoin to challenge Dollar dominance [https://blockchaintechnology-news.com/news/china-yuan-stablecoin-dollar-challenge/]
[12] China's Crypto Paradox: Banned Yet Influential in Global [https://www.ainvest.com/news/china-crypto-paradox-banned-influential-global-digital-asset-markets-2508/]