China vs. Hong Kong: The Digital Securities Divide

The regulatory landscape for digital securities in Greater China has evolved into a tale of two distinct markets. While Mainland China maintains one of the world’s strictest bans on private cryptocurrency activities, Hong Kong has actively positioned itself as a premier global hub for Web3 and regulated digital assets. For issuers and investors, understanding this divergence is critical.

Mainland China: “Blockchain, Not Bitcoin”

Beijing’s stance has remained consistent since its initial crackdowns in 2017 and 2021: the government supports the underlying technology but strictly prohibits its use for decentralized fundraising or currency speculation.

The Ban on STOs and Crypto

In Mainland China, Security Token Offerings (STOs), Initial Coin Offerings (ICOs), and cryptocurrency trading are illegal. The People’s Bank of China (PBOC) and other financial authorities view these activities as “illegal public financing” that threatens financial stability. As a result:

• No Trading Venues: Cryptocurrency exchanges are banned from operating on the mainland.
• No Mining: Industrial-scale crypto mining was banned in 2021.
• Legal Status: While cryptocurrency acts are not legal tender, local courts have occasionally recognized digital assets as “property” for the sake of inheritance or theft disputes, though they hold no status as financial instruments.

The State Alternatives: BSN and e-CNY

Instead of decentralized public chains like Ethereum (ETH ), China promotes state-sanctioned infrastructure:

• e-CNY (Digital Yuan): A Central Bank Digital Currency (CBDC) designed to modernize the payment system and reduce reliance on cash and tech giants like Alipay.
• Blockchain-based Service Network (BSN): A state-backed infrastructure project aimed at providing a cheap, compliant environment for building blockchain applications. It focuses on “permissioned” chains that allow government oversight, rejecting the anonymity of public permissionless networks.

Hong Kong: The Regulated Web3 Hub

In stark contrast to the mainland, Hong Kong has leveraged its autonomy under the “One Country, Two Systems” principle to build a comprehensive regulatory framework for digital assets.

The SFC’s Licensing Regime

The Securities and Futures Commission (SFC) of Hong Kong has introduced a clear licensing regime for Virtual Asset Trading Platforms (VATPs). As of 2025, this framework allows retail investors to trade large-cap tokens like Bitcoin (BTC ) and Ethereum on licensed exchanges, provided strictly compliant custody and KYC measures are in place.

STO Friendly Environment

Hong Kong is actively courting Security Token Offerings. The SFC has clarified that tokenized securities are likely to be treated similarly to traditional securities, provided they follow existing prospectus and licensure rules. This clarity has encouraged major financial institutions to pilot tokenized bonds and real estate funds within the city.

Summary for Issuers

The message for the industry is clear: Do not attempt to solicit investors or operate exchanges within Mainland China. However, for those looking to tap into Asian capital, Hong Kong offers a sophisticated, regulated, and government-backed gateway to the digital asset economy.