China’s Cautious Approach to Stablecoin Testing
China is considering a cautious approach to testing stablecoin activities within specific free trade zones, according to a recent article by Caijing. This initiative, which is rather an academic policy proposal than a directive from regulatory bodies, aims to examine international payment processes while maintaining strict control over domestic capital flows.
Objectives and Framework
The proposal suggests that controlled experiments with stablecoins could enhance trade transactions and foster financial innovation, provided these experiments are well-contained. Specifically, free trade zones are viewed as regulated settings where various reforms—including those related to cross-border finance and foreign exchange—are already being piloted.
Notably, the authors emphasize that any experimental phase would exclude individual retail users and avoid the unrestricted circulation of stablecoins in mainland China.
This cautious stance comes as Beijing has expressed ongoing reservations regarding cryptocurrency assets, having previously issued warnings about the potential dangers of illicit financial activities and capital flight. Thus, the proposal frames stablecoins primarily as a tool for facilitating trade rather than as speculative financial instruments.
Proposed Locations and Regulatory Framework
Among the suggested locations for these initial tests are the Qianhai Free Trade Zone and the Hainan Free Trade Port, which already have existing frameworks for cross-border financial initiatives and connections to international markets. Their legal flexibility is highlighted as suitable for sandbox-style trials, enabling a more controlled environment for testing.
The proposal includes the establishment of a regulatory sandbox that would be monitored by local financial authorities alongside foreign exchange regulators. It also recommends collaboration with Hong Kong to ensure a harmonious licensing framework for stablecoin issuers, which could help mitigate regulatory oversights.
Methodology and Risk Management
Furthermore, a selective whitelist methodology would be employed, whereby only designated stablecoins would be permitted within the sandbox parameters. Initial focus areas would prioritize B2B transactions tied to actual trade flows, steering clear of consumer payment activities.
A significant component of the proposal is the introduction of an offshore renminbi stablecoin, which would be fully backed by offshore RMB reserves at a one-to-one ratio. This design is believed to facilitate trade settlements without the need to liberalize the mainland capital account, ensuring that reserves are kept separate from the domestic banking structure.
Risk management measures are heavily emphasized within the plan, which includes recommendations for independent audits of reserves, real-time transaction oversight, and stringent anti-money laundering checks. Additionally, it proposes mechanisms to freeze transactions if unusual activities are detected.
Conclusion
Finally, this proposal aligns with China’s overall policy approach, as reflected in the People’s Bank of China’s reiterated concerns regarding the risks posed by stablecoins in late 2025. Due to its advisory nature, any advancements toward pilot programs will necessitate clear regulatory endorsement.
