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China's Central Bank deputy governor has denounced STOs an illegal activity in China following the slow progress from Initial Coin Offerings to the newer ICO called STOs. STOs represent an ICO backed by tangibles such as assets, or profit or revenue of a company. Ultimately more lucrative that an ICO. However, both are still currently banned in China.
South Morning China Post reported that Pan Gongsheng, the deputy governor of the People's Bank of China told an internet finance forum in Beijing that financing activities through STOs and ICOs was illegal, even though the activities continue to be rampant in the mainland following a nationwide crackdown of cryptocurrency markets from 2017.
Companies have been looking at moving to STOs following the lack of success with ICOs recently, companies in China may think that this loophole allows them to promote their business as ICOs are currently illegal in China. However, the governor announced "The STO business that has surfaced recently is still essentially an illegal financial activity in China, Virtual money has become an accomplice to all kinds of illegal and criminal activities.”
Gongsheng admits that most ICO and STO fundraising projects in China are linked to possible illegal fundraisings and pyramid schemes, among other financial fraud.
China's crackdown on ICOs in 2017 came after 80% of all ICO financing was taking place in China. The clamp-down in a bid to curb crime within the industry, appears to have had a positive effect on the industry. China took steps to halt ICO operations and participation within the country due to the negative affect the potential illegal activities could have on the countries overall financial industry.
Huo Xuewen, Chief of financial watchdog Beijing Bureau of Financial Work, issued a stern warning to anyone trying to operate an STO in China "I want to warn those who are promoting STO fundraising in Beijing. Don’t do it in Beijing. You will be kicked out if you do it.”
China remains one of the massive players in the cryptocurrency space and are taking steps to prevent companies from taking advantage of citizens and damaging the financial industry in the country.