China has enacted a ban on the tokenisation of real-world assets (RWAs) to safeguard its financial security and monetary sovereignty. This move is part of a broader effort to combat financial fraud, as many investments in RWAs have turned out to be scams within mainland China. Analysts point out that the ban also aims to address concerns over capital flight, which has been a significant issue amidst tighter global financial conditions.

The concept of asset tokenisation, which involves converting rights to various RWAs into digital tokens for easier trading, has gained popularity due to its potential to enhance liquidity and facilitate fractional ownership. However, with many existing RWA investments in China being fraudulent, the government is taking a strong stand to protect investors and stabilize the financial system. The ban on onshore activities is expected to be enforced alongside increased scrutiny of offshore tokenisation efforts, indicating the seriousness of the government's approach to this sector.

Despite the crackdown, China is indicating that it recognizes the importance of fintech innovation, particularly in regions like Hong Kong. By allowing for regulated innovation in financial technology, Chinese authorities aim to strike a balance between ensuring investor protection and fostering technological growth within the industry. This dual approach serves not only to address the immediate concerns of fraud and capital flight but also to potentially lead to new, safer opportunities in the fintech space, while maintaining a critical focus on control and oversight in the financial markets.