China's Path Forward: Rebalancing Cryptocurrency Innovation and Regulation

In early January, prominent policy researcher Zhang Ming from the Chinese Academy of Social Sciences published a pivotal analysis questioning China’s approach to digital currency governance. His findings, carried by Caixin and other financial media outlets, highlight a critical moment for the world’s second-largest economy—one where proactive regulatory innovation could reshape global financial infrastructure.

As an emerging powerhouse in digital finance, China faces mounting pressure to transition from a reactive stance to a leadership position in global digital currency affairs. The stakes are higher than ever, and the window for strategic action is closing. What concrete steps can Beijing take to seize this opportunity?

Strengthening the Foundation: Domestic System Upgrades

China’s first priority must be accelerating the development and real-world deployment of the digital yuan. This state-backed digital currency represents more than innovation—it’s a cornerstone of financial sovereignty and international competitiveness. Parallel to this rollout, the country must modernize its regulatory infrastructure to enable precision-targeted cryptocurrency oversight, replacing blunt-instrument restrictions with intelligent, nuanced policies that distinguish between speculative assets and legitimate blockchain applications.

Building these capabilities internally creates the credibility needed for Beijing to lead on the global stage.

Scaling Stablecoins Within Controlled Parameters

A particularly challenging frontier involves stablecoins—digital assets pegged to fiat currency. Rather than banning them outright, China should explore measured integration with traditional banking and payment systems. This controlled approach would allow the country to harness stablecoin efficiency while maintaining financial stability safeguards. The experiment would generate invaluable data for future policy refinement.

Catalyzing International Standards and Cooperation

Perhaps most ambitiously, China must champion the development of unified international regulatory frameworks. Anti-cryptocurrency money laundering standards, CBDC interoperability protocols, and cross-border digital asset governance rules remain fragmented. Beijing should actively shape these standards rather than passively receiving them.

Simultaneously, enhanced R&D collaboration with other nations on central bank digital currencies promises both technological breakthroughs and deeper diplomatic ties. International regulatory cooperation in cryptocurrency oversight—establishing shared best practices and enforcement mechanisms—would buttress China’s influence while reducing systemic risks for all market participants.

By systematically improving internal capabilities, rethinking the relationship between innovation and control, and forging international consensus around digital finance governance, China can transition from reactive policymaker to proactive architect of the next financial era.