In-depth Analysis of RWA Project Underlying Asset Selection: Compliance and Feasibility Assessment

Recently, there has been a surge in consultation demands regarding the real-world asset ( RWA ) projects, involving a wide range of underlying assets, from agricultural products to real estate, from precious metals to purely conceptual projects. However, under the current regulatory framework in our country, the development of RWA projects faces many challenges and limitations.

This article aims to clarify which mainland assets can be used in the Hong Kong sandbox and which assets are not suitable, in order to help relevant parties conduct business more efficiently.

Basic Understanding and Judgment Criteria for RWA of Mainland Assets

Firstly, it needs to be clarified that assets located in mainland China and primarily operated for mainland residents can be used for RWA, which has been confirmed by several successful cases. However, there are indeed some restrictions on issuing RWA in the Hong Kong sandbox. Based on practical experience, the following three types of assets are not suitable for RWA:

1. Assets that do not comply with the legal regulations in the Hong Kong region
2. Assets that do not comply with the legal regulations of mainland China.
3. Currently, it is not advisable to issue assets in Hong Kong.

The "dual compliance principle" of mainland assets issuing RWA in Hong Kong.

As the assets are located in the mainland, but the tokenized assets are sold and operated in Hong Kong, the entire financing chain spans both regions, thus requiring compliance with the regulatory requirements of both the mainland and Hong Kong.

Hong Kong Compliance

Hong Kong is still in the exploratory stage of regulating RWA, currently adopting a "one project, one discussion" review approach. However, it generally follows the "substantive regulatory principle," which means judging compliance based on the substance of the asset rather than its appearance. Specific regulations need to refer to the corresponding financial product issuance rules.

Compliance in Mainland

Attention must be paid to the legality of the underlying assets themselves and the legality of their operation methods. Assets can be classified into circulating goods, restricted circulation goods, and prohibited goods. Assets used for RWA should be "circulating goods" or "restricted circulation goods" with permission.

At the operational level, the underlying assets must comply with Chinese laws and regulations, stay away from the red lines, and obtain the necessary administrative permits.

It is not suitable to issue assets in Hong Kong at this stage.

Although they comply with the "dual compliance principle," certain assets may not be suitable for issuance in Hong Kong at this stage. The Hong Kong sandbox experiment tends to favor assets with "high-tech" or "clean and green" attributes. Furthermore, assets that are unlikely to generate good cash flow are also less likely to pass the review.

Feasibility Analysis of RWA for Specific Mainland Assets

Jewelry and cultural relics RWA

Overall, it is currently not recommended to use jewelry and cultural artifacts as underlying assets for RWA. The following situations can be directly dismissed:

1. Gemstone products with gambling characteristics
2. Processed jewelry and gemstones
3. National ban on the sale of biological products
4. Low-quality or processed jadeite or jade imitations
5. Precious metals such as pure gold and pure silver that are restricted or prohibited from circulation by the state.

Intellectual Property RWA

Although there are currently no successful cases in Hong Kong, intellectual property projects with significant commercial value can be attempted once regulatory standards are clarified.

Agriculture and Agricultural Products RWA

If the project has high technological content, research value, and good commercial prospects, it can be considered for trial under the premise of complying with scientific ethics review standards.

Pure Conceptual RWA

Such projects are usually not recommended, and RWA is not equivalent to crowdfunding.

Conclusion

There are currently no clear regulations regarding whether RWA can be done in Hong Kong for assets outside of the mainland and Hong Kong. From the perspective of Hong Kong as an international financial center, the location of the asset should not be a barrier; the key lies in whether the asset itself is real, credible, compliant, and has investment value.