Few stories in global finance are as layered — or as geopolitically loaded — as China's relationship with stablecoins. On the surface, the answer seems simple: China banned crypto in 2021 and has repeatedly reaffirmed that ban. Look closer, however, and you find a country that is simultaneously suppressing stablecoins on the mainland, nurturing a regulated stablecoin hub in Hong Kong, watching its citizens and companies quietly use dollar-pegged tokens to move money across borders, and fearing that America's own stablecoin legislation could cement the US dollar's grip on global finance for another generation.
This is not a story of a country that has rejected stablecoins. It is a story of a country wrestling with them.
What Is a Stablecoin, and Why Does It Matter?
A stablecoin is a type of cryptocurrency designed to maintain a fixed value — most commonly by being pegged to the US dollar, though other currencies and assets are also used. Unlike Bitcoin or Ethereum, which can swing 20% in a day, stablecoins like Tether (USDT) and Circle's USDC are designed to be boring by design. One token equals one dollar, always.
That stability makes them remarkably useful. They can be sent anywhere in the world in minutes, with minimal fees, without passing through a bank. According to the Financial Action Task Force, the global stablecoin market reached a capitalisation of $316 billion by October 2025, with daily trading volumes of $156 billion. Around 97% of fiat-backed stablecoins are pegged to the US dollar — a fact that makes Beijing deeply uneasy.
The Official Position: Ban First, Control Always
To understand China's stablecoin landscape, you have to start with the mainland's official stance: stablecoins are, effectively, illegal.
The People's Bank of China (PBOC) has consistently characterised virtual currency activities — including stablecoins — as "illegal financial activities." In a November 2025 joint statement involving nearly every major Chinese financial and legal regulator, the PBOC reiterated that "stablecoins are a form of virtual currency and currently cannot effectively meet requirements for customer identification and anti-money laundering."
Then, in February 2026, the PBOC went further, banning the issuance of renminbi-pegged stablecoins — by anyone, anywhere in the world. The joint statement from eight regulatory bodies declared: "No unit or individual at home or abroad may issue RMB-linked stablecoins without the consent of relevant departments." The ban extended even to offshore issuances of the yuan, cutting off private companies from tokenising China's own currency.
The reasoning is not merely financial. For Beijing, the right to issue currency is a matter of sovereignty. Private stablecoins — whether pegged to the dollar or the yuan — represent a threat to the state's monopoly on money. China's answer to digital currency is the e-CNY (digital yuan), a fully centralised central bank digital currency (CBDC) that the government controls completely, and which currently has seven trillion yuan in circulation. Alipay and WeChat Pay, which together cover over 90% of China's retail payments market, have already integrated e-CNY. In this context, private stablecoins are not just a risk — they are competition.
The Hong Kong Exception: A Controlled Gateway
Yet stablecoins are very much alive within China's orbit — just not on the mainland.
In May 2025, Hong Kong's Legislative Council passed a landmark Stablecoins Ordinance, creating a comprehensive licensing regime for fiat-backed stablecoin issuers. The Hong Kong Monetary Authority (HKMA) became the regulator, and more than forty companies applied for issuer licences almost immediately. Chinese e-commerce giants JD.com and Alibaba had both expressed interest in launching stablecoins through the Hong Kong framework, though mainland regulators subsequently asked them to pause those plans.
Hong Kong's role here is characteristic of its function in China's financial architecture: it is, as one analyst put it, "legally distinct yet politically aligned, globally integrated yet institutionally loyal." It is implausible that such a sweeping regulatory move could have taken place without Beijing's approval. The city serves as China's financial laboratory — a place where experiments are allowed that cannot yet be sanctioned on the mainland.
The initial experiments in Hong Kong have focused on dollar-pegged and Hong Kong dollar-pegged tokens, with some exploration of offshore yuan (CNH) stablecoins. The rationale for Beijing is strategic: a successful offshore yuan stablecoin could expand the renminbi's reach in global trade, support demand for Chinese government bonds, and create an alternative to SWIFT-based dollar transactions — all without requiring any loosening of mainland controls.
Why Chinese Businesses and Citizens Use Stablecoins Anyway
Official bans rarely tell the whole story, and China's stablecoin reality on the ground is far more complex than the PBOC's statements suggest.
Capital controls and the shadow OTC market. China maintains strict capital controls, limiting how much money citizens can move overseas. For years, stablecoins — particularly USDT — have served as a workaround. Over-the-counter (OTC) peer-to-peer trading, conducted via apps like WeChat and Alipay (not through official exchanges), allows individuals to convert yuan into USDT and move it offshore. This market operates in a legal grey zone, and the PBOC is fully aware of it.
Cross-border trade. For smaller Chinese exporters dealing with counterparties in Southeast Asia, Africa, or Latin America, stablecoins offer something traditional banking cannot: cheap, fast, borderless settlement. In regions where banking infrastructure is weak or where dollar access is limited, USDT has become a de facto trade currency.
Russia-China energy trade. Perhaps the most geopolitically significant use case is China's energy trade with Russia. Following Western sanctions on Moscow after the 2022 Ukraine invasion, Chinese buyers of Russian oil began routing payments through stablecoins to avoid the dollar-dominated SWIFT system. According to a Reuters report from March 2025, Chinese buyers transfer yuan to intermediaries who convert it into USDT or similar digital assets, which are then transferred to Russian exporters who convert the funds back into rubles. By cutting out Western financial intermediaries entirely, the arrangement sidesteps sanctions exposure while settling large volumes efficiently.
Money laundering. Less admirably, stablecoins have also become embedded in Chinese money laundering networks. A 2025 paper from the Royal United Services Institute found that Chinese money laundering organisations are increasingly incorporating USDT into their operations, providing criminal networks with digital assets in exchange for cash. These networks have become major launderers for Western organised crime, including proceeds from fentanyl trafficking.
The Dollar Problem: Why Beijing Fears US Stablecoin Dominance
Even as it bans private stablecoins at home, China is watching US stablecoin policy with what the Council on Foreign Relations describes as "considerable apprehension."
The reason is structural. Approximately 97% of all fiat-backed stablecoins are pegged to the US dollar. When someone in Vietnam, Nigeria, or Argentina uses USDT to settle a trade, they are effectively transacting in digital dollars — reinforcing dollar dominance without any US bank or government having to lift a finger.
America's GENIUS Act, signed into law in mid-2025, accelerated this dynamic by creating a framework for regulated US banks to issue dollar-backed stablecoins with credible 1:1 dollar backing. Some forecasts suggest that up to $1.75 trillion in new dollar-backed stablecoins could enter circulation over the next three years as a result.
For China, this is alarming. For decades, Beijing has worked to internationalise the renminbi — through the Cross-Border Interbank Payment System (CIPS), through bilateral trade agreements, through BRICS payment mechanisms. Dollar stablecoins, if they achieve mass global adoption, could entrench dollar dominance in the digital economy in ways that make renminbi internationalisation even harder.
Coinbase's chief policy officer put it plainly: "If this issue is mishandled, it could give non-US stablecoins and central bank digital currencies a critical competitive advantage at the worst possible time."
China's leadership would agree with the framing — but from the opposite side of the ledger.
China's Counter-Strategy: Control First, Innovation Second
Faced with this dual challenge — dollar stablecoins threatening monetary sovereignty, and its own citizens using private crypto to evade capital controls — China's approach is becoming clearer: programmable sovereignty.
Rather than competing with dollar stablecoins directly, Beijing's strategy appears to be:
- Deepen e-CNY adoption domestically, making it the dominant digital payment instrument with the added feature — announced in January 2026 — that commercial banks can now pay interest on digital yuan wallets, making the CBDC more attractive to savers.
- Use Hong Kong as a regulated offshore stablecoin hub, allowing yuan-adjacent stablecoins to expand renminbi usage in trade — but only under tight regulatory control, and only in Hong Kong.
- Promote CIPS and bilateral yuan settlement with trade partners, particularly in the Global South and among BRICS members, creating alternatives to dollar-denominated stablecoin flows.
- Enforce aggressively on the mainland, continuing crackdowns on OTC crypto trading and underground stablecoin markets to maintain control of the monetary system.
Chinese officials have described their philosophy as "compliance first, innovation later" — a sharp contrast to the more permissive environment in the United States.
What This Means for the Rest of the World
The China-US stablecoin dynamic is, at its core, a new front in a much older rivalry: who controls the global monetary system.
Dollar-pegged stablecoins, backed by US banks under the GENIUS Act framework, could deepen dollar dominance in precisely the digital corridors — emerging market trade, cross-border remittances, crypto-native finance — where Beijing had hoped to expand the renminbi's reach.
Hong Kong's stablecoin experiment, meanwhile, offers a glimpse of what a Chinese-aligned digital financial infrastructure might look like: regulated, controlled, useful for international trade, but ultimately subordinate to state authority. There will be no DeFi revolution originating from Hong Kong's licensed stablecoin issuers.
For businesses operating across Asia, the practical implications are already visible. Stablecoins are flowing — through sanctioned Russian energy deals, through OTC capital flight, through legitimate cross-border e-commerce, and through the murkier channels of shadow finance. The question is not whether stablecoins will play a role in China's financial ecosystem. They already do. The question is who will control that role — and on whose terms.
Conclusion: A Reluctant Revolution
China did not choose stablecoins. In many respects, it is still fighting them. But the forces driving stablecoin adoption — the demand for cheap cross-border settlement, the desire to escape dollar dependency, the practical utility for trade in underbanked markets — are the same forces that have always driven financial innovation, and they are not going away.
Beijing's answer is not to embrace this revolution but to direct it: suppress it where it threatens state control, channel it where it might advance strategic goals, and prepare a CBDC-based alternative for when the time is right. Whether that strategy can compete with the network effects of USDT — already the world's most widely used stablecoin, with a market cap exceeding $130 billion — remains the central open question in global digital finance.
The dragon and the dollar coin are, for now, locked in an uneasy coexistence. How that relationship evolves will shape the financial architecture of the next decade.
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