Stablecoin Ban from the Chinese Government to Alibaba

Recently, a significant development has occurred that has had a major impact on the crypto market. The Chinese government has suspended the plans of major companies, such as "Ant Group," a subsidiary of "Alibaba," and "JD.com," to issue stablecoins in Hong Kong. This decision was made by the People's Bank of China (PBoC) and the Cyberspace Administration of China and was implemented immediately after the new stablecoin licensing regime in Hong Kong came into effect.

Previously, both organizations had sought permission from the PBoC to issue yuan-pegged stablecoins in Hong Kong. However, concerns from the PBoC about private companies producing any "currency" led to the suspension of these plans. Officials are worried that such stablecoins may pose a threat to the digital yuan, creating uncertainty in the market.

The e-CNY, China's central bank-backed digital currency, has been tested since 2020 but has yet to achieve the anticipated widespread adoption. The former governor of the PBoC, Zhou Xiaochuan, expressed concerns about the stability of stablecoins at a closed forum held in August. According to Zhou, central banks have two primary concerns: the first being the issuance of money without 100% reserve backing, meaning excessive supply; the second being the leverage effect that occurs after issuance.

Additionally, the Hong Kong Monetary Authority announced in September that 77 companies were interested in obtaining stablecoin licenses. However, the Beijing government views the progress of private companies in this area as a risk that could undermine the role of the e-CNY. Chinese regulators have also moved to slow down not only stablecoins but also projects aimed at tokenizing real-world assets. Some major brokerage firms were advised to halt such plans, and the publication of research reports supporting stablecoins was also requested to be stopped.

These developments have once again highlighted the difference between Hong Kong's goal of positioning itself as a regulatory testing ground for cryptocurrencies and Beijing's centralized financial control. Investors should be cautious during this process and consider potential risks.