Two recent developments in cryptocurrency policy reveal how Hong Kong continues to function as China’s financial bridge to the digital asset world, even under the “one country, two systems” framework.
Beijing uses Hong Kong to liquidate seized crypto
The first development involves Beijing’s approach to disposing of confiscated cryptocurrencies. According to a Caixin report following an announcement by Beijing police, mainland authorities are leveraging Hong Kong’s licensed cryptocurrency exchanges to sell seized digital assets.
The process works through intermediaries: Beijing’s law enforcement division instructs the state-owned Beijing Equity Exchange (CBEX) to dispose of the cryptocurrencies, which then utilizes Hong Kong’s regulated exchanges for the actual sales. The Hong Kong Monetary Authority (HKMA) has licensed ten cryptocurrency exchanges to date, providing Beijing with legitimate channels for these transactions.
While the exact amount of confiscated cryptocurrency held in China remains unclear, estimates suggest the figure reaches tens of billions of dollars. Given China’s restrictive stance on cryptocurrencies, this disposal strategy represents a pragmatic solution that contrasts sharply with approaches in other jurisdictions like the United States.
Stablecoins proposed for Belt and Road payments
The second development centers on Hong Kong’s emerging role in facilitating stablecoin transactions for Chinese infrastructure projects. Hong Kong recently unveiled comprehensive stablecoin regulations set to take effect in August, creating a regulatory framework that could serve broader Chinese interests.
Last week, Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, suggested in a radio interview that stablecoins could facilitate settlements within China’s Belt and Road Initiative. This massive infrastructure program spans dozens of countries worldwide and requires efficient cross border payment mechanisms.
According to the Hong Kong Economic Times, Hui specifically had in mind countries with volatile local currencies – presumably making those currencies unattractive for China to engage with. He framed stablecoins as a solution to break through existing bottlenecks in cross border payments for these projects.
Stablecoins versus digital RMB CBDC
This stablecoin strategy raises interesting questions about China’s payment preferences. Some of these were considered in a recent mainland think tank piece. China has already developed its central bank digital currency (CBDC), the digital renminbi, which has been successfully used for cross border payments with countries like the UAE. Additionally, China plays a key role in mBridge, a cross border payment platform specifically designed for CBDC transactions.
The preference for stablecoins over these existing digital yuan solutions likely comes down to implementation speed. While stablecoin payments can begin immediately under Hong Kong’s new regulatory framework, integrating new countries into mBridge typically requires months or years of technical and regulatory preparation.
The infrastructure question
A crucial consideration moving forward will be which blockchain infrastructure China chooses to support for these stablecoin transactions. The country could encourage payments through any permissionless blockchain networks, or it might channel activity through its preferred Blockchain-based Service Network (BSN).
The BSN represents China’s vision of controlled blockchain access. Its global version hosts “non-crypto” versions of popular permissionless blockchains like Ethereum, Cosmos, and Polygon – supporting stablecoins while excluding other cryptocurrencies. The Chinese version was co-founded by several state enterprises, while the international arm shares Red Date Technologies as a common participant in the BSN Spartan Foundation, originally created in Singapore but with close ties to Hong Kong through Red Date.
This infrastructure choice will ultimately determine whether China’s Belt and Road stablecoin strategy operates within existing global blockchain networks or through China’s more controlled alternative ecosystem.
