Huaxia Bank issues 600 million RMB bonds! First-ever digital RMB tokenized bond

Listed financial institution Huaxia Bank, which is affiliated with the Chinese government, has issued RMB 4.5 billion (USD 600 million) in tokenized bonds, aiming to reduce settlement friction by eliminating intermediaries in the auction process. The on-chain government bond is issued by Huaxia Financial Leasing, a subsidiary of Huaxia Bank. The RMB bond offers holders a three-year fixed yield of 1.84%, with bond shares auctioned exclusively to holders of China’s digital yuan.

Digital Yuan-Exclusive Auction Pioneers New Bond Issuance Model

The USD 600 million Huaxia Bank RMB bond shares are issued through an unprecedented approach: auctioned only to holders of China’s digital yuan. This restrictive issuance model is extremely rare in global bond markets, as traditional bonds are usually open to all qualified investors to maximize subscription size and competitive pricing. Huaxia Bank’s decision to limit the offering to digital yuan holders suggests that the primary goal of this bond issuance is not just fundraising, but to test and promote the application of central bank digital currency (CBDC) in financial infrastructure.

Who are the holders of the digital yuan? Currently, China’s digital yuan is still in the pilot phase, mainly promoted in major cities such as Shenzhen, Shanghai, and Beijing. Holders include individual consumers participating in the pilot, corporate clients, and institutions with business relationships with pilot banks. These holders are generally open to new fintech and have completed real-name verification for their digital yuan wallets, which lowers Huaxia Bank’s KYC (Know Your Customer) costs.

The design of the auction mechanism is also noteworthy. Traditional bond issuance requires investment banks as underwriters, who are responsible for pricing, distribution, and market stabilization. This process involves multiple intermediaries, each charging fees. Huaxia Bank uses blockchain technology to auction bonds directly to end investors, completely bypassing intermediary layers. Investors can directly participate in bidding with their digital yuan wallets, with the highest bidders obtaining bond shares—the entire process is transparent and instantaneous.

The cost savings from this zero-intermediary model are significant. Underwriting fees for traditional bond issuances are typically between 0.5% and 2% of the issuance size, meaning that for a USD 600 million issuance, this results in savings of USD 3 million to USD 12 million. These saved costs can be partially passed on as lower financing costs (for the issuer) or higher yields (for investors), thereby improving overall market efficiency.

Tokenized Bond Technology Architecture and Settlement Revolution

(Source: RWA XYZ)

Tokenized RMB bonds can reduce the number of intermediaries required for trade settlement, shorten settlement time, and lower transaction costs. In traditional bond markets, it usually takes T+2 (two business days after the trade date) from trade execution to final settlement, involving multiple clearinghouses, custodial banks, and settlement systems. Each step adds time, cost, and risk of failure.

Huaxia Bank’s tokenized bonds use smart contracts for automated settlement. When investors successfully bid in the auction, the smart contract automatically deducts the corresponding amount from their digital yuan wallet and transfers the tokenized bonds to their account. The entire process is completed instantly on the blockchain, achieving true T+0 (instant settlement). This improvement in settlement speed not only enhances user experience but, more importantly, reduces settlement risk and capital requirements.

From a technical perspective, Huaxia Bank most likely uses government-backed permissioned blockchain networks such as BSN (Blockchain-based Service Network) or underlying technology developed specifically for the digital yuan. While these networks are permissioned (as opposed to public, permissionless blockchains), they still provide core blockchain advantages: immutable transaction records, automated smart contract execution, and multi-party consensus mechanisms.

Three Key Technical Advantages of Tokenized Bonds

Zero Intermediary Costs: Bypasses investment banks and brokers, saving 0.5%-2% in underwriting fees

Instant Settlement: Reduces settlement from T+2 to T+0, lowering settlement risk and capital requirements

Transparent Tracking: Blockchain records all transactions and ownership changes, facilitating audit and regulatory oversight

The three-year fixed yield of 1.84% is also noteworthy. This yield is lower than that of Chinese government bonds of the same tenor (usually between 2% and 2.5%), indicating Huaxia Bank’s willingness to incur some cost for the experimental use of tokenization technology. Investors may accept the lower yield out of interest in new technology, or because they believe the liquidity and trading convenience of tokenized bonds in the secondary market can compensate for the lower yield.

China’s Contradictory Blockchain Policy and Strategic Pivot

In 2025, China’s attitude toward stablecoins and cryptocurrencies shifted, opting instead to develop central bank digital currency (CBDC) and state-approved permissioned blockchain technology, as digital assets became geopolitically significant. China’s stance on stablecoins and crypto has been inconsistent, sometimes attempting outright bans, sometimes easing regulations and allowing private companies to operate in the sector.

In early August, China cracked down on local brokers and financial firms organizing stablecoin seminars domestically, instructing these firms to cancel all scheduled events and stop publishing research on the topic. According to Bloomberg, Chinese regulators were concerned stablecoins could facilitate fraud in the country. Less than two weeks later, reports emerged that the Chinese government was considering legalizing privately issued RMB stablecoins to enhance the renminbi’s status in the foreign exchange market.

Chinese tech giants including Alibaba, Ant Group, and JD.com saw this as a green light to begin developing RMB-pegged tokens, but a warning from Beijing in October regarding private stablecoins put these plans on hold. This policy flip-flop demonstrates ongoing divisions within Chinese regulators regarding crypto. One faction believes in a total ban to maintain financial stability and capital controls, while another believes blockchain technology should be harnessed within a controlled framework to improve financial efficiency.

Huaxia Bank’s RMB bond issuance finds a balance within this policy contradiction: using blockchain technology and tokenization, but limiting it to the central bank digital currency system, with issuance by a state-owned financial institution. This “controlled innovation” path satisfies the need for technological modernization while ensuring full government control of the system.

From a geopolitical perspective, China’s deeper motivation in promoting the digital yuan and tokenized bonds is to challenge the dollar-dominated international financial system. The current global bond market relies heavily on USD-denominated issuance and settlement, with the SWIFT system and US-led clearing networks enabling the US to exert influence through financial sanctions. China hopes to establish an alternative system bypassing the US dollar through the digital yuan and blockchain-based settlement systems.

Shanghai Digital Yuan Operations Center’s Cross-Border Ambitions

In September, the People’s Bank of China established a digital yuan operations center. Based in Shanghai, the center will be responsible for cross-border settlement and the development of other blockchain-related projects. The establishment of this institution marks the digital yuan’s transition from domestic pilot to international expansion. Choosing Shanghai as the center is highly symbolic, as it is China’s financial hub and the bridgehead for RMB internationalization.

Cross-border settlement is the core mission of the digital yuan operations center. Currently, China’s trade with Belt and Road Initiative (BRI) countries is enormous, but most of it is still settled in US dollars. This not only increases currency conversion costs and exchange rate risk, but also exposes China’s trade to the risk of US financial sanctions. The digital yuan offers an alternative: Chinese companies can settle directly with trading partners in digital yuan, completely bypassing the US dollar and SWIFT system.

The issuance of Huaxia Bank’s RMB bonds can be seen as a rehearsal for this cross-border strategy. Although this issuance is limited to domestic digital yuan holders, the established technical infrastructure and operational processes can be easily extended to cross-border scenarios. In the future, China may issue digital yuan-denominated tokenized bonds to investors in Belt and Road countries, who can purchase them in digital yuan and settle instantly on the blockchain. This will open up an entirely new path for RMB internationalization.

The development of other blockchain-related projects shows that China’s ambitions for blockchain technology go far beyond bonds. Possible directions include tokenized equities, real estate securitization, supply chain finance, and blockchain-based cross-border payment networks. The Shanghai operations center will serve as the incubator and coordination hub for these innovative projects, helping China gain a leading position in global blockchain finance.

From a regulatory philosophy perspective, China’s path stands in stark contrast to the US. The US is gradually opening up the crypto market, allowing private firms to operate exchanges and issue stablecoins under strict regulatory frameworks. China, on the other hand, has chosen a “state-led” model: banning private stablecoins and decentralized exchanges, but vigorously promoting the central bank digital currency and blockchain applications by state-owned institutions. Which of these models will prove more successful may take years to determine.