China Embraces Hong Kong’s Crypto Hub Ambitions
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Despite the Chinese government’s blanket ban on cryptocurrencies and industry-related activities in the country’s mainland, neighboring Hong Kong appears to be on track to become a cryptocurrency hub.
Hong Kong Stands on Its Own
On Tuesday, Bloomberg reported that the Chinese government has been relatively supportive of Hong Kong’s crypto ambitions or, at the very least, has not brazenly ruled it out.
According to the news report, representatives from the Chinese Liaison Office have been visiting Hong Kong frequently, attempting to engage industry experts in order to understand the nature of the crypto-related activity and how the Hong Kong government plans to incorporate these assets.
Hong Kong has been a Special Administrative Region of China under British rule for over a century. The region was eventually transferred to China in 1997, with the British and Chinese agreeing that the latter would not interfere with Hong Kong’s ability to govern itself for at least the next 50 years.
However, Chinese officials, including President Xi Jinping, have insisted that Hong Kong is Chinese territory. And, in recent years, they have subtly hinted at a possible reunion.
Nevertheless, Hong Kong is currently free to govern itself, and the region is also incorporating this freedom into its cryptocurrency policy. Hong Kong has been working for a long time to become a crypto hub. In October 2022, Elizabeth Wong, head of the fintech unit at the Securities and Futures Commission (SFC), explained to reporters that they are looking to create their own rules to govern their native crypto space.
The rules would make it easier for retail and institutional investors to enter the crypto space, setting proper procedures and guidelines for prospective players to follow.
On Monday, the agency put forth its proposed licensing regime, which would take effect from June 2023. The regime would require all exchanges and virtual asset service providers looking to operate in Hong Kong to register with the SFC, with approval based on their ability to meet specific prerequisites.
These include Know Your Customer (KYC) security, compliance, cybersecurity, Anti-Money Laundering (AML)/Counter-Terrorist Financing (CTF), risk management, and more.
A New Side of China
Normally, such a move would have been met with derision from mainland China, especially considering that the Chinese government continues its hardline stance against digital assets and other related industry activities, including mining, where the country has the majority global market share.
However, this isn’t necessarily the case. Citing people familiar with the matter, Bloomberg reported that the relations between Chinese and Hong Kong government officials have so far been positive, giving rise to the belief that Beijing could be open to Hong Kong being tested as a crypto hub.
Although it might be a long shot, this sudden embrace of Hong Kong as a testing hub could eventually give way to a possible rethink of China’s hardline stance against crypto in its mainland as well. The Chinese government has continued to crack down on any industry activity, even going as far as forcing support from its traditional tech sector.
Given that the country is still working on its central bank digital currency (CBDC) and cramming as many features as possible into the asset, it won’t be surprising if China eventually warms up to crypto again – albeit with its own set of rules.
