On January 22, the Peoples Bank of China and five other departments jointly issued the Opinions on Piloting the International High Standards in the Financial Sector in the Conditional Free Trade Pilot Zone (Hong Kong) to Promote Institutional Opening (hereinafter referred to as the Opinions). The document proposed 20 policy measures, including supporting the optimization of the Cross-border Wealth Management Connect pilot in the Guangdong-Hong Kong-Macao Greater Bay Area, improving the arrangements for the cross-border flow of financial data, and allowing foreign financial institutions to provide new financial services, marking the official opening of a new round of financial opening.
Under this policy framework, can the crypto asset industry find a point of convergence and broaden its development path with the help of policy dividends? This article will explore the potential and future of the blockchain and crypto asset industry in the Greater Bay Area from two aspects: the construction of a new blueprint and the analysis of industry challenges.
Crypto asset industry, potential path under policy guidance
The Opinion provides many potential opportunities for the blockchain and crypto asset industry, especially in terms of qualified investment products, data flow support and financial services innovation, where policies and industries can be aligned.
The document mentions supporting mainland residents in the Guangdong-Hong Kong-Macao Greater Bay Area to purchase qualified investment products sold by Hong Kong and Macao financial institutions through Hong Kong and Macao financial institutions, and expanding the scope of participating institutions and qualified investment products. At present, qualified products are mainly concentrated in traditional financial instruments, such as Hong Kong stock funds and offshore bonds. However, with the Hong Kong SAR governments active exploration of virtual asset supervision, such as the launch of virtual asset ETFs, it is worth looking forward to whether these products can be included in the cross-border wealth management in the future.
Combined with the policy terms, if Hong Kongs crypto asset products can provide investment channels for mainland investors through the Wealth Management Connect, it will not only enrich the asset allocation options of mainland residents, but also become an important tool to promote the internationalization of the RMB. Once the scope of cross-border Wealth Management Connect is further expanded, virtual asset ETFs or on-chain bonds may take the lead in pilot projects, opening the door to the financial application of the blockchain industry.
How do foreign financial institutions help domestic enterprises with financing?
The Opinion clearly requires that “facilitate and regulate the cross-border flow of data of financial institutions in pilot areas, and explore the formation of a unified compliance standard for cross-border flow of financial data under the framework of the national cross-border data transmission security management system.” This policy provides possibilities for the application of blockchain in cross-border finance.
The inherent transparency and security of blockchain technology can meet regulatory requirements for tracking capital flows, while achieving efficient transactions through smart contracts. This is not only suitable for small cross-border payments between individuals and enterprises, but can also support larger-scale trade financing and settlement.
The Opinion states that foreign financial institutions are allowed to provide new financial services similar to those provided by Chinese financial institutions, and relevant approvals are required to be completed within 120 days, and on the premise of authenticity and compliance, all transfers related to foreign investors investments in the pilot areas that are authentic and compliant are allowed to be freely remitted in and out without delay. Such transfers include: capital contributions; profits, dividends, interest, capital gains, royalties, management fees, technical guidance fees and other fees.
This policy not only facilitates the opening of traditional financial services, but also creates new possibilities for the combination of blockchain technology and traditional finance. Especially in the field of RWA (Real World Asset), the cooperation between foreign financial institutions and blockchain companies is expected to become an important tool for domestic companies to expand financing channels.
RWA uses blockchain technology to digitize and tokenize real-world assets (such as real estate, equity, bonds, etc.) to achieve more efficient circulation and financing. At a time when domestic companies are generally facing difficulties and high costs in financing, RWA provides a new way to break through the limitations of traditional finance.
RWA provides domestic enterprises with the opportunity to expand international market channels. Traditional corporate financing usually requires multiple layers of intermediaries, which is complicated and costly. Through RWA and blockchain technology, enterprises can directly contact international investors, eliminating complex approval and intermediary links, and significantly shortening the time for funds to be in place. This directness has brought efficiency improvements to corporate financing and reduced overall transaction costs. The high transparency of asset tokenization allows investors to conduct real-time risk assessment based on on-chain information. This transparency greatly reduces information asymmetry, thereby reducing investors risk premium requirements, and ultimately enables the financier to obtain lower financing rates.
By cooperating with foreign financial institutions, domestic enterprises can not only attract international investors interested in emerging markets, but also use the circulation of on-chain assets to enter the global market. Such an international financing model not only provides enterprises with more diversified sources of funds, but also enhances their influence in the international market and further expands the space for business growth.
Through the introduction of RWA, the cooperation between foreign financial institutions and blockchain companies is expected to create new financing paths for domestic companies. This model can not only effectively make up for the shortcomings of traditional financing methods, but also inject new vitality into the financial opening of the Greater Bay Area and become an important bridge connecting domestic and international capital markets.
The art of balancing regulation and innovation
Although the policy provides an opportunity for the potential development direction of the crypto asset industry, the game between regulation and innovation is still a realistic problem that cannot be ignored. This game involves not only the constraints of the existing legal framework, but also tests how the industry can achieve technological breakthroughs and commercialization in compliance.
Dynamic game between policy easing and compliance pressure
Mainland China has always maintained a high-pressure supervision on crypto assets. Since the complete ban on ICO (initial coin offering) in 2017, the domestic services of virtual currency trading platforms have also been strictly restricted. Although the Opinion proposes the expansion of cross-border wealth management and supports the purchase of certain types of overseas financial services, the investment tools that are currently clearly allowed are still limited to traditional financial products. Whether crypto assets can be included in the policy pilot scope is a dynamic regulatory game.
In Hong Kong, the Virtual Asset Service Provider (VASP) system launched in 2023 provides a legal path for compliant crypto asset trading platforms. This makes Hong Kong one of the important centers for the development of international crypto assets. However, whether the mainland will indirectly pave the way for crypto asset products to enter the mainland market through the pilot results of Hong Kong and Macao remains an open question.
The integration problem of technology and business model
Blockchain technology is known for its transparency and efficiency, but its implementation in the traditional financial system faces multiple obstacles. Cross-border payment is one of the hot application areas of blockchain technology, but existing cross-border payment networks such as SWIFT and CHIPS have established a complex and efficient global clearing system. How to achieve seamless integration of blockchain payment in the existing network is still an unsolved commercial problem.
On the other hand, asset tokenization is another important application scenario of blockchain technology. From real estate to stocks and bonds, almost all traditional financial assets can be split and circulated through blockchain technology. It has significant advantages in theory, but it still faces certain obstacles in actual operation. For example, whether tokenized assets can be legally recognized as traditional assets still requires further policy support. At the same time, how to carry out cross-border capital flows under the compliance framework, especially in the face of complex international regulatory requirements, is also a major challenge at present. In addition, the process of asset chaining needs to ensure the authenticity and integrity of data. Especially when involving multiple jurisdictions, how to achieve efficient cross-border regulatory coordination is an issue that needs to be explored continuously.
Market education and investor trust
The crypto asset industry has long been controversial due to its high price volatility and lack of transparency. Even if the policy is opened up to allow certain crypto asset products to enter the pilot program of Wealth Management Connect, the understanding and acceptance of these products by ordinary investors will still determine the maturity of the market.
For example, virtual asset ETFs, as a more traditional crypto asset investment tool, have been launched in multiple markets around the world. However, even in markets with mature regulation, the liquidity and volatility issues of ETF products still cause concerns among investors. In addition, the complexity and high technical barriers of crypto assets make it difficult for many ordinary investors to effectively assess risks. In this case, how financial institutions can enhance investor confidence through information disclosure and user education will be an important topic for future development.
Summary and Outlook: Cryptocurrency Industry in the Wave of Openness
The financial opening of the Greater Bay Area has provided broad opportunities for the crypto asset industry, but it has also brought new challenges. How to find a path for innovative breakthroughs under high regulatory pressure is the core issue facing the industry. From the perspective of the policy framework, if the crypto asset industry can develop in the direction of compliance and transparency, it will have the opportunity to become part of the Greater Bay Areas financial system.
In the future, the industry needs to accelerate the implementation of technology and explore the possibility of cooperation with traditional financial institutions. At the same time, industry participants should pay more attention to investor education and information disclosure to eliminate the markets cognitive barriers to crypto assets. Through these efforts, the crypto asset industry is expected to find a steady growth path in the Greater Bay Area and explore more possibilities for Chinas financial opening.
