On January 22, the People's Bank of China and five other departments jointly issued the "Opinions on Promoting Institutional-level Opening-up in the Free Trade Zones (Port) with Conditions by Docking with International High Standards in the Financial Sector" (hereinafter referred to as the "Opinions"). The document proposed 20 policy measures, including supporting the optimization of the "Cross-boundary Wealth Management Connect" pilot in the Guangdong-Hong Kong-Macao Greater Bay Area, improving the arrangements for cross-border flow of financial data, and allowing foreign financial institutions to provide new financial services, marking the official start of a new round of financial opening-up.
Within this policy framework, can the crypto asset industry find a point of convergence and leverage the policy dividends to expand its development path? 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 Paths under Policy Guidance
The "Opinions" provide many potential opportunities for the blockchain and crypto asset industry, especially in the areas of qualified investment products, data flow support, and financial service innovation, where policy and industry can find convergence.
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." Currently, qualified products are mainly concentrated in traditional financial instruments, such as Hong Kong stock funds and offshore bonds. However, with the Hong Kong SAR government's active exploration of virtual asset regulation, such as the launch of virtual asset ETFs, it is worth looking forward to whether these products can be included in the Cross-boundary Wealth Management Connect.
In combination with the policy clauses, if Hong Kong's crypto asset products can provide investment channels for Mainland investors through the Wealth Management Connect, it will not only enrich the asset allocation options for Mainland residents, but also become an important tool for promoting the internationalization of the RMB. Once the scope of the Cross-boundary Wealth Management Connect is further expanded, virtual asset ETFs or on-chain bonds may be the first to be piloted, opening the door for the financialization applications of the blockchain industry.
How Can Foreign Financial Institutions Help Domestic Enterprises Raise Funds?
The "Opinions" clearly require "facilitating and regulating the cross-border flow of data by financial institutions in the pilot areas, and exploring the formation of a unified compliance standard for the cross-border flow of financial data within the framework of the national data cross-border transmission security management system." This policy provides the possibility for the application of blockchain in cross-border finance.
The inherent transparency and security of blockchain technology can meet the regulatory requirements for tracing capital flows, while achieving high efficiency through smart contracts. This not only applies to small-scale cross-border payments between individuals and enterprises, but also supports larger-scale trade financing and settlement.
The "Opinions" mention "allowing foreign financial institutions to carry out the same type of new financial services as domestic financial institutions, and requiring the relevant approvals to be completed within 120 days", and "allowing truly compliant transfers related to foreign investors' investments to be freely remitted in and out of the pilot areas without delay, under the premise of true compliance. 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-up of traditional financial services, but also creates new possibilities for the integration 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 means for domestic enterprises to expand their financing channels.
RWA is the digitization and tokenization of real-world assets (such as real estate, equity, bonds, etc.) through blockchain technology, thereby achieving more efficient circulation and financing. At a time when domestic enterprises are generally facing difficulties and high costs in financing, RWA provides a new way to break through the constraints of traditional finance.
RWA provides domestic enterprises with the opportunity to expand their international market channels. Traditional corporate financing often requires going through multiple intermediaries, with a complex process and relatively high costs. Through RWA and blockchain technology, enterprises can directly connect with international investors, bypassing the complex approval and intermediary processes, significantly shortening the time for funds to be in place. This directness brings efficiency improvements to enterprise financing, while also reducing overall transaction costs. The high transparency of tokenized assets allows investors to conduct real-time risk assessment based on on-chain information. This transparency greatly reduces information asymmetry, thereby reducing investors' risk premium demands, ultimately allowing the financing party to obtain a lower financing rate.
Through cooperation with foreign financial institutions, domestic enterprises can not only attract international investors interested in emerging markets, but also enter the global market through the circulation of on-chain assets. This internationalized financing model not only provides enterprises with more diverse sources of funding, but also enhances their influence in the international market, further expanding their business growth space.
The introduction of RWA is expected to create new financing paths for domestic enterprises through the cooperation between foreign financial institutions and blockchain 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-up of the Greater Bay Area, becoming an important bridge connecting the domestic and international capital markets.
Challenges Galore: The Art of Balancing Regulation and Innovation
Although the policies provide opportunities for the potential development of the crypto asset industry, the dynamic game between regulation and innovation is still an unavoidable reality. This game involves the constraints of the existing legal framework, as well as the industry's ability to achieve technological breakthroughs and commercial implementation within the compliance framework.
Dynamic Game between Policy Relaxation and Compliance Pressure
Mainland China has maintained a high-pressure stance on the regulation of crypto assets. Since the comprehensive ban on ICOs (Initial Coin Offerings) in 2017, the domestic services of virtual currency trading platforms have also been strictly restricted. Although the "Opinions" propose the expansion of the Cross-boundary Wealth Management Connect and support the purchase of certain types of overseas financial services, the currently clear scope of eligible investment instruments is 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) regime launched in 2023 provides a legalization path for compliant crypto asset trading platforms. This has made Hong Kong one of the important centers for the international development of crypto assets. However, whether the Mainland will indirectly pave the way for crypto asset products to enter the Mainland market through the pilot results in Hong Kong and Macao remains an unresolved issue.
The Difficulty of Integrating Technology and Business Models
Blockchain technology is known for its transparency and efficiency, but its implementation in traditional financial systems faces multiple obstacles. Cross-border payments are one of the hot application areas of blockchain technology, but the existing cross-border payment networks such as SWIFT and CHIPS have already established a complex and efficient global clearing system. How blockchain payments can be seamlessly integrated into the existing network is still an unresolved commercial challenge.
On the other hand, asset tokenization, as another important application scenario of blockchain technology, can theoretically achieve significant advantages by splitting and circulating almost all traditional financial assets, from real estate to stocks and bonds, through blockchain technology. However, it still faces certain obstacles in actual operation. For example, whether tokenized assets can be legally recognized as equivalent to traditional assets still requires further policy support. At the same time, how to ensure the flow of cross-border capital within the compliance framework, especially in the face of complex international regulatory requirements, is also a major challenge. In addition, the process of asset on-chain needs to ensure the authenticity and completeness of the data. Especially when involving multiple jurisdictions, how to achieve efficient cross-border regulatory coordination is an issue that requires continuous exploration.
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 opens up to allow certain crypto asset products to enter the Wealth Management Connect pilot, the understanding and acceptance of ordinary investors towards these products will still determine the maturity of the market.
For example, virtual asset ETFs, as a relatively traditional crypto asset investment tool, have been launched in multiple markets globally. However, even in well-regulated markets, the liquidity and volatility issues of ETF products still raise concerns among investors. In addition, the complexity and high technical threshold of crypto assets make it difficult for many ordinary investors to effectively assess the risks. In this case, how financial institutions can enhance investor confidence through information disclosure and user education will be an important issue for future development.
Summary and Outlook: The Crypto Asset Industry in the Open Wave
The financial opening of the Greater Bay Area has provided ample opportunities for the crypto asset industry, while also bringing new challenges. How to find a path of innovative breakthroughs under the high pressure of regulation is the core issue currently facing the industry. From the policy framework perspective, if the crypto asset industry can develop around compliance and transparency, it will have the opportunity to become part of the Greater Bay Area's financial system.
In the future, the industry needs to accelerate the application 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, in order to eliminate the market's cognitive barriers to crypto assets. Through these efforts, the crypto asset industry is expected to find a stable growth path in the Greater Bay Area, and explore more possibilities for China's financial opening.
