Hong Kong’s crypto hub ambitions win quiet backing from Beijing

HONG KONG – In October, Hong Kong rolled out the red carpet for crypto businesses to help revitalise the embattled financial hub. Signs are now emerging that the push has under-the-radar backing from Beijing, providing impetus for mainland Chinese firms to return.

Representatives from China’s Liaison Office and other officials have been frequent guests at the city’s cryptocurrency gatherings over the past months, swopping business cards and WeChat details, said people familiar with the matter.

The encounters have been friendly, with officials checking on developments, asking for reports and, in some cases, making follow-up calls, the people said.

Local crypto operators say their presence is clearing up any doubts about Beijing’s attitude towards Hong Kong’s efforts to become a cryptocurrency hub. The low-key support shows that officials are keen on using the laissez-faire city as a testing ground for digital assets even as they keep a tight rein on any such activity on the mainland.

Mainland and overseas firms are taking the cue, pushing to register their businesses and planning a return to the Chinese territory 15 months after Beijing slapped a ban on the industry and forced many to set up shop abroad.

“As long as one does not violate the bottom line… not threaten financial stability in China, Hong Kong is free to explore its own pursuit under ‘one country, two systems’,” said Mr Nick Chan, a National People’s Congress member and a lawyer who advises on cyber security and digital assets.

The city on Monday outlined a further opening to crypto, releasing a plan to let retail investors trade digital tokens such as Bitcoin and Ether.

China started its crackdown on crypto in 2017 and banned trading in 2021, leading some of its biggest home-grown names, such as Binance and Tron, to exit the country. Only recently did the world’s second-largest economy ease its grip on the development of the blockchain technology behind these digital assets, allowing some non-fungible tokens to be developed.

For now, there is little indication that Beijing will relax its own ban amid concern about consumer protection, the use of crypto to evade capital controls, and environmental damage from the energy consumed by Bitcoin mining.

The mainland representatives are reporting their findings in Hong Kong to their superiors in mainland China, although the purpose of those reports is not clear, the people said.

“As long as it is still under the (Communist) Party’s control, there will be no U-turn on China’s crypto policy,” said Mr He Yifan, founder and chief executive of state-backed blockchain firm Red Date Technology. “It does no good to the real economy.”

In recent months, Chinese officials have been explicit in their endorsement of Hong Kong’s ambitions to become a fintech hub. People’s Bank of China governor Yi Gang delivered addresses at key Hong Kong events on China’s development of its central bank digital currency and its close cooperation with the Hong Kong Monetary Authority.

Hong Kong’s renewed interest in crypto came at a tumultuous time as industry stalwart FTX collapsed, and contrasts with tightening rules in rival hub Singapore. For Hong Kong to succeed in its pursuit, it has to woo back the Chinese crypto entrepreneurs who over the past few years decamped to Singapore and beyond while awaiting clearer regulations in Hong Kong.

One who is plotting a return is the founder of Tron, Mr Justin Sun, who said on Twitter last month that he will relocate to Hong Kong to be “closer to the action”. Earlier this month, he said digital asset exchange Huobi plans to expand its operations in the city.