China’s crackdown on cryptocurrencies has been in place for several years, but recent developments indicate a resurgence of interest in virtual assets, particularly through Hong Kong markets. With local regulators exploring the potential of stablecoins, the Hong Kong stock market saw significant activity on Wednesday as Guotai Junan International, the first mainland Chinese-backed securities brokerage to secure a license for virtual currency trading in the region, witnessed its shares surge nearly threefold.
Mainland investors flocked to purchase Guotai’s stock, propelling its trading volume to the highest on the exchange on both Wednesday and Thursday, outpacing major player Alibaba. Data from Wind Information showed that while Guotai fell to second place on Friday, it remained a focal point in trading until Xiaomi took the lead after launching its electric vehicle on Thursday night. Unlike mainland China, Hong Kong operates under a different set of financial regulations that permit bitcoin trading. In late May, Hong Kong adopted a stablecoin bill designed to establish a framework for financial institutions to issue and manage virtual assets tied to government-issued currencies.
Morgan Stanley’s Chief China Economist, Robin Xing, along with his team, noted in a report on June 19 that China’s renewed interest in stablecoins is likely influenced by apprehensions that U.S. legislation on stablecoins could enhance the dominance of the dollar. The People’s Bank of China is reportedly viewing Hong Kong as a testing ground for alternative payment options, according to the firm. While crypto transactions have been banned in mainland China since 2021, PBOC Governor Pan Gongsheng’s prominent speech in mid-June indicated a shift in focus toward stablecoins and highlighted the vulnerabilities of traditional payment systems exposed by digital technologies.
Other Chinese firms are also embracing this evolving landscape. China Renaissance, a financial services company listed in Hong Kong, announced on Thursday plans to invest $100 million over the next two years in cryptocurrency assets, targeting expansion in the Web3.0 sector. The company also appointed Frank Fu, the former CEO of the crypto exchange Huobi Americas, as an independent non-executive director. Following this news, China Renaissance’s shares saw a 20% increase last week. Similarly, Shanghai-listed TF Securities enjoyed a nearly 29% rise after confirming its subsidiary, TF International, received a license for virtual asset trading in Hong Kong. Meanwhile, Eastmoney, a popular financial information and brokerage company, also experienced a notable stock increase of approximately 11% last week, despite not reporting any updates related to virtual assets.
Commenting on the recent fluctuations, Beijing-based finance blogger Li Dongfang expressed that the substantial rise in Guotai Junan’s shares reflects favorable market sentiments surrounding the stablecoin business rather than actual growth. He anticipates more brokerages will secure similar licenses, expecting lesser volatility in stock prices. Part of Beijing’s rationale for banning cryptocurrency trading has been the desire to manage financial risks, particularly given the scale of speculation among China’s 1.4 billion citizens.
The overarching trend indicates a shift, despite increased regulatory scrutiny. The New York-based cryptocurrency conference Consensus extended its footprint to Hong Kong this year, hosting its inaugural event in February, with another planned for next year. Recent reports from Chinese media have also examined stablecoins’ viability in facilitating overseas transactions via online platforms. Notably, JD.com, a prominent e-commerce entity in China, and Standard Chartered have emerged among those officially involved in Hong Kong’s stablecoin initiative.
Morgan Stanley analysts caution that neglecting this trend may position China behind in the race for digital infrastructure, especially as stablecoins increasingly serve as alternatives to traditional banking mechanisms.
