An In-depth Research Report on the Penetration Paths of Stablecoins in China

1. Extreme Social Security Tax Rates for Low-Income Groups in First-Tier Cities

In China's first-tier cities, low-income groups face an exceptionally heavy burden of social security contributions. Taking Shenzhen and Shanghai as examples, if a young worker earns a monthly salary of only 3,000 RMB, current regulations stipulate that their social security contribution base cannot be lower than 60% of the local average social wage of the previous year. This means that even if the actual salary is very low, the social security fee must be calculated based on a higher base. For instance, Shanghai's minimum social security base for 2023 was approximately 7,310 RMB [2]. For an employee with a monthly salary of 3,000 RMB, the social security department still calculates contributions based on 7,310 RMB. This creates an almost distorted "hidden tax burden." According to Shanghai's contribution ratios, enterprises must bear 16% for pension insurance, 8.5% for medical insurance (plus 1.5% for major medical insurance), 0.5% for unemployment, and 0.16% for work-related injury insurance, while individuals must pay 8% for pension, 2% for medical, and 0.5% for unemployment [3]. Under the minimum base of 7,310 RMB, the enterprise's monthly payment is 2,058.5 RMB, and the individual's monthly payment is 767.55 RMB, totaling 2,826 RMB [4]. This amount represents approximately 94% of the employee's actual salary, equivalent to an implicit tax rate of almost ninety percent.

To provide a clear comparison, the following table lists the social security contribution burden ratios in two typical scenarios:

Scenario	Monthly Salary	Social Security Contribution Base	Monthly Enterprise + Individual Contribution	Equivalent Percentage of Salary
Second-Tier City (Lower Avg. Social Wage)<br/>Base = Actual Salary (Hypothetical)	¥3,000	¥3,000 (at 60% of local avg.)	~¥1,800 (incl. five insurances and one housing fund)	≈60%
Shanghai (Higher Avg. Social Wage)<br/>Base >> Actual Salary	¥3,000	¥7,310 (at 60% of local avg.)	¥2,826 [4]	≈94%
Table: Comparison of the hidden social security tax burden for low-income groups. In Shanghai, because the minimum base far exceeds the actual salary, the social security contribution approaches ninety percent of the salary. In contrast, in some areas with lower average social wages where the contribution base equals the actual salary, the total burden of the five insurances and one housing fund is also around sixty percent.

Such an extreme social security rate (in the range of approximately 60% to 90%) is clearly unreasonable. On the one hand, the social security expenses paid by enterprises for low-wage employees are close to or even exceed their salaries, causing the cost of formal employment to soar. On the other hand, the disposable income of employees is drastically reduced. For example, in the Shanghai case mentioned above, a 3,000 RMB salary, after deducting the individual's social security portion, leaves only about 2,230 RMB, yet the enterprise has incurred an additional 2,058 RMB in social security costs. The high "five insurances and one housing fund" contributions act as a heavy de facto tax, severely squeezing the disposable income of low-income youth [4]. Consequently, many young people are resistant to participating in social security, believing they "pay a lot of money, but have no confidence they will receive a pension in the future" [5]. Some, to avoid being "harvested" by the social security system, even choose not to sign formal labor contracts or open salary bank accounts, thereby evading the obligation to pay social security from the source.

Sociologists point out that this distrust in the social security system is leading to a "withdrawal tide" among the youth [6, 7]. Young people tend to adopt a "lying flat" attitude in response; the high-burden social security is seen as "paying for others' pensions," while their own future benefits are uncertain [5]. The excessive hidden tax burden is eroding the legitimacy of the social security system, prompting a portion of the young labor force to flee formal employment and the financial system. This has laid the groundwork for the proliferation of the gray economy and alternative financial channels.

2. Third-Party Payments: The Financial Lifeline for Bankless Youth and a Bridge to Stablecoins

Among the young people who refuse to open bank accounts and evade social security, third-party payment tools such as Tencent's WeChat Pay and Alipay have become the primary channels for their financial activities. These platforms can handle almost all daily transactions: receiving and sending wages, transferring funds, and making online and offline purchases, all without the involvement of traditional banks. Many young people "only have WeChat/Alipay, but no bank card." They complete real-name verification through their mobile phones, linking their ID cards and phone numbers, without proactively applying for new bank savings cards. In some regions, where bank branches have stringent measures requiring customers to provide proof of employment and social security to open an account, freelancers and unemployed individuals repeatedly face obstacles. Rather than being met with a cold shoulder at the bank, these young people prefer to rely on their existing third-party payment accounts for their daily lives.

The ubiquity of WeChat and Alipay allows for peer-to-peer transfers and merchant payments to bypass the banking system entirely. For example, an employee's salary can be paid directly via a WeChat Red Packet or transfer, and living expenses such as rent and utilities can be paid on Alipay. Non-real-name accounts (or accounts registered using others' identities) play a role in this process. Some individuals, to enhance privacy or evade regulation, use others' WeChat or Alipay collection QR codes, allowing funds to flow "indirectly" without directly entering their own accounts. This practice is related to the phenomenon of "proxy collection" prevalent in some regions (as will be detailed later in the section on the Chaoshan network). Although WeChat and Alipay have strengthened real-name systems and risk monitoring in recent years, these platforms offer young people greater convenience and a sense of psychological security compared to the banking system.

It is noteworthy that third-party payment platforms are not only a substitute for bank accounts but also a preliminary channel to cryptocurrency stablecoins. As regulations prohibit banks from directly participating in virtual currency transactions, over-the-counter (OTC) trades typically use Alipay/WeChat as the payment method [9, 10]. The typical process is as follows: a user wishing to purchase stablecoins like USDT finds a seller on an exchange platform through a peer-to-peer model and completes the RMB-to-USDT exchange directly using a WeChat transfer or Alipay payment. A series of underground transaction cases shows that a large amount of crypto-related funds flows both domestically and internationally through third-party payments [10, 11]. However, this method is not absolutely safe—the payment giants themselves are cooperating with crackdowns. As early as 2019, Alipay officially stated that it "prohibits the use of Alipay for virtual currency transactions," and upon discovery, would immediately restrict account collection functions or even permanently ban the account. WeChat Pay has also publicly stated that it does not support virtual currency transactions and will clear out crypto-related accounts [9]. An industry insider involved in OTC trading pointed out: "WeChat, Alipay, and bank cards are no different; all can be frozen. Moreover, the risk control of WeChat and Alipay is even more abnormal, with big data risk control being stricter than that of banks" [12]. This indicates that although young people view third-party payments as a safe haven, they are equally subject to high regulatory pressure. Once funds are identified as being involved in fraud or illegal transactions, accounts will be frozen [12].

Overall, WeChat/Alipay have constructed a financial lifeline for the bankless youth demographic. In the domestic consumption sphere, they have almost completely replaced the daily functions of banks. In the realm of cross-border and asset transfers, they have become a bridge connecting the fiat and stablecoin worlds. In this process, third-party payments both satisfy the youth's need to "stay away from banks" and provide an entry channel for stablecoins into China. As regulation tightens, this bridge also carries risks, but in the gray area, it remains an essential path for many to bypass traditional finance and acquire stablecoin assets.

3. The Chaoshan Clan Network: A Hidden Ecosystem of Shared Accounts and "KYC Mutual Aid"

The Chaoshan region in eastern Guangdong is famous for its strong clan concepts and tight-knit folk networks. In gray financial activities, Chaoshan people have developed a unique set of practices by leveraging their clan-based trust networks: the sharing of chat accounts, "KYC mutual aid" among brothers, and the "proxy holding" of WeChat/Alipay collections are quite common. According to grassroots case handlers, cases where entire clans participate in telecommunications fraud and money laundering are not uncommon [13].

First, within Chaoshan clan communities, the mixed use of chat accounts is not unusual. It is common for a family to share a single WeChat account for business contacts or for elders to reply to messages on behalf of younger members. This practice of account sharing is, on the one hand, for the convenience of running a family business, and on the other hand, a consideration for evading risk control—when authorities monitor an account for abnormalities, the real operator may have already switched to another clan member's account to continue activities, making it difficult for regulators to pinpoint individuals.

Even more hidden is "brotherly KYC mutual aid." KYC (Know Your Customer) typically refers to the real-name verification of financial accounts. In the Chaoshan area, when someone is inconvenienced to open an account due to a bad record or to avoid suspicion, they often ask close siblings or even cousins to open accounts and perform real-name authentication on their behalf. Due to the high level of trust within the clan, the person whose identity is borrowed willingly "lends" their ID card and mobile phone number for registering bank or payment accounts. This act of opening a card using another's identity is itself extremely risky legally, but driven by family interests and high returns, many are willing to take the risk. A case uncovered by Hubei police showed that a Chaoshan clan-style fraud gang, with cousins surnamed Lu at its core, had collected a large number of others' bank cards and mobile phone card "four-piece sets" for "running points" money laundering [14, 13]. Most gang members were brothers or fellow villagers, trusting each other to borrow accounts and forming a solid community of interest.

At the same time, the proxy holding of WeChat/Alipay collections also has a market in Chaoshan's informal small-scale finance. "Proxy collection" means that Party A, who is actually doing business, does not use their own QR code or account for receiving payments, but instead has a trusted Party B's account receive the money, which is then settled privately. The Chaoshan clan network uses personal ties to flexibly deploy multiple individuals' collection QR codes to circulate funds. For example, a sum of money from online gambling might pass through the Alipay accounts of several clan members in layers before finally being consolidated into the hands of the mastermind. In this process, each link is guarded by relatives and friends, making it difficult for outsiders to penetrate. Even if one account is frozen by official risk control, the clan network can quickly activate a new relative's account to take over, ensuring the flow of funds is not broken. This multi-layered proxy structure is vividly described as an "unkillable octopus," whose tentacles are difficult to trace with ordinary technical means.

The culture of family mutual aid long nurtured in the Chaoshan region has objectively provided fertile ground for gray industry funds. Many local families consider it their duty to assist relatives in business and financing, even if it involves legally marginal activities like money laundering and "running points," often adopting an attitude of "helping family over reason." With the backing of clan forces, criminal gangs are better able to resist external crackdowns. This is also why the police often mention the harm of "clan-style telecommunications fraud gangs": once a clan is involved, all links are tightly connected, greatly increasing the difficulty of investigation [15, 14]. In recent years, the national "Broken Card" campaign (cracking down on the renting and lending of bank and mobile phone cards) has found that black and gray industries involving family-style bulk account opening and selling of "two cards" exist in eastern Guangdong, Fujian, and other places. In Chaoshan, it has become an underground business model for entire family members to open cards. Criminals purchase sets of bank/payment accounts for a certain fee and then sell them centrally to fraud groups. Some poor villages have even seen the emergence of "card-opening expert" families, where men, women, old, and young have a division of labor, earning tens of thousands per month, which astonishes outsiders.

In summary, the Chaoshan clan network has built a web of personal relationships for the circulation of gray funds, characterized by high internal trust and strong risk resistance. Account sharing blurs the monitoring targets, KYC mutual aid breaks through the barriers of the real-name system, and proxy collection disperses the money chain. For stablecoins to penetrate Chinese society, this network provides an ideal breeding ground: family members can play different roles, such as fiat on/off-ramps, domestic transfers, and offshore USDT exchanges, each performing their duties while covering for each other. The existence of this model also explains why, despite high-pressure crackdowns, an undercurrent of funds still flows—because behind it stands the unbreakable bond of the clan.

4. The Fujian Fraud Money Chain: The Role of Underground Banks and Stablecoins

The Fujian area (especially the coastal regions) has historically been a hotbed for cross-border illicit fund flows. Among these, huge sums from black and gray industries like telecommunications fraud often shuttle between domestic and foreign locations through Fujian's network of underground banks, gradually being converted into stablecoins for concealment or transfer. Taking Industrial Bank as an example, this Fujian-headquartered joint-stock bank has been repeatedly named in suspicious fund operations in past cases. An investigation revealed that between 2015 and 2016, the Taizhou branch of Industrial Bank failed to fulfill its due diligence obligations when handling "onshore guarantee for offshore loans" business, allowing loan funds to be illicitly remitted abroad, ultimately resulting in a regulatory fine [16]. During the same period, the Hangzhou branch of China Merchants Bank also used the names of 303 individuals to illegally split foreign exchange purchases, providing convenience for a client to bypass the per-person annual exchange limit of $50,000, and was subsequently fined [16]. These are just the tip of the iceberg—illicit capital from Fujian is quite adept at using gray channels in banks and nominee accounts to circumvent foreign exchange controls.

A more covert method involves not going through formal banking channels but using "matching" style underground remittance. This technique is similar to "money house transactions": there are separate pools of funds domestically and abroad, and the equivalent exchange of funds between the two locations is achieved through the sale of virtual goods or cryptocurrencies. One party gives domestic RMB to an underground bank, and the bank simultaneously instructs its overseas partner to transfer foreign currency (or an equivalent asset) to a designated overseas account, thus completing the exchange, with a handling fee charged in the middle [17, 18]. In recent years, new matching methods have introduced a virtual currency replacement link. For example, a cross-border underground banking case uncovered by Beijing police showed that the suspect, Lin, in collusion with others, first used domestic funds to purchase large amounts of virtual currency, then sold it on overseas trading platforms to foreign buyers in exchange for foreign currency [19]. The entire gang registered more than a dozen crypto wallet accounts, with an annual fund flow of up to 2 billion RMB [20]. Furthermore, they also used this virtual currency "matching" method to launder the proceeds for upstream criminals illegally buying and selling citizen information—that is, having overseas hackers exchange stolen virtual currency with wallets controlled by the bank, thereby converting dirty coins into clean money [21]. It is evident that the combination of underground banks and cryptocurrencies has become an important pillar of the underground economy in Fujian and across the country.

Specifically regarding the return path of Fujian's telecommunications fraud capital, it is often a multi-pronged approach: first, the fraudulently obtained domestic funds are split and "smurfed" through underground banks—for example, by dividing them among multiple relatives' accounts to use their annual foreign exchange purchase quotas for remittance, or by paying abroad through false trade documents. Subsequently, a portion of these funds is converted back into stablecoins overseas. According to reports, many fraud gangs at their Southeast Asian bases directly purchase USDT with victims' funds, then transfer the USDT back to China, where accomplices exchange it for RMB to distribute the spoils. This type of operation achieves a decoupling of fund outflow and inflow: RMB is deposited domestically through underground banks, while cross-border transfers are completed overseas by stablecoins, which are then cashed out in China. USDT and other stablecoins, due to their convenience and anonymity, are called "new money laundering tools" for fraud funds [22, 23]. In a major money laundering case uncovered by the Jincheng police in Shanxi, a 21-person gang used USDT to launder up to 380 million RMB in fraud funds [24]. And in a 12 billion RMB cross-border money laundering case uncovered in Tongliao, Inner Mongolia, the suspect developed a downline through overseas communication software like Telegram, converting fraud-related funds into Tether (USDT), which was then transferred back to the upstream "gold masters" of the fraud group in RMB through hundreds or thousands of anonymous on-chain accounts [25]. The entire criminal network had a clear division of labor: some were responsible for collecting funds and purchasing coins domestically, some were responsible for selling USDT overseas to obtain foreign currency, and others specialized in recruiting a large number of accounts to provide circulation channels [26]. The police pointed out that because virtual currency transactions are anonymous and not restricted by geography, this method of money laundering is extremely covert and difficult to gather evidence on [27].

The "failure" of traditional financial institutions like Industrial Bank and the prosperity of underground matching networks have given Fujian's fraud funds a dual moat. On the one hand, loopholes in financial regulation (such as bank insiders acquiescing to split foreign exchange purchases) provide them with a certain "legal" cover to transfer large sums [16]. On the other hand, the emergence of crypto assets has provided a brand-new channel for cross-border fund flows. In actual cases, gray channels in banks and USDT on-chain transactions are often used in parallel: for example, first converting a large sum of money into overseas US dollars through an underground bank, then immediately purchasing USDT and depositing it into a cold wallet, or conversely, bringing fraudulently obtained crypto from overseas back to the country to cash out. Regardless of the order, the ultimate goal is to circumvent the $50,000 control and evade fund tracing. It can be said that stablecoins have become an indispensable link in the Fujian fraud capital chain. They are both a tool for funds to escape the Chinese financial system and a vehicle for funds to潜回 (sneak back) into the country to distribute profits.

Regulators have taken note of this trend and have cracked down on it. The "Anti-Telecom and Online Fraud Law" explicitly prohibits providing virtual currency money laundering services for telecommunications fraud, with violators being held criminally responsible [28]. The State Administration of Foreign Exchange also frequently announces cases of foreign exchange violations, adding those involved in underground banking cases to a credit blacklist [29]. In the second half of 2023, the People's Bank of China, in cooperation with the police, launched a special operation against the illegal exchange of stablecoins like USDT, and multiple "running points" gangs were subsequently arrested. However, tempted by huge profits, a continuous stream of Fujian funds still attempts to take the risk. As an industry insider said: "No matter how strict the crackdown is, it's impossible to completely block it" [10]. As long as there is a huge capital gap and demand deficit between domestic and foreign markets, new schemes will replace old ones, and underground cross-border fund channels will stubbornly exist in various forms [30]. The role of stablecoins, as a lubricant for global capital flows today, is unlikely to diminish in China's gray fund paths in the short term.

5. Conclusion

In summary, the penetration path of stablecoins (such as USDT, USDC) in China is actually the product of the intertwining of multiple socio-economic undercurrents. On one end is the dissatisfaction of the domestic youth with high hidden tax burdens and financial controls; they flee the formal system and turn to third-party payments and crypto assets to control their own wealth. On the other end is the adept use of new tools by traditional gray forces (clan networks, telecom fraud gangs), who integrate stablecoins into the ancient network of underground banks to achieve cross-border money laundering and capital maneuvering. In cities like Shenzhen and Shanghai, the distortedly high social security contributions make young people "dislike the official and favor the wild," objectively providing a mass base and market demand for digital currencies [31, 6]. In regions like Chaoshan and Fujian, the deep-rooted personal-relationship society and underground financial traditions have paved the way for the landing of stablecoins, with all sorts of innovative methods, from KYC mutual aid to matching exchanges, emerging one after another [19, 15].

It must be emphasized that this penetration path is not a bright and open road, but one fraught with huge legal and risk hazards. The state is intensifying its crackdown, blocking loopholes through comprehensive measures such as the "Broken Card" campaign, crackdowns on underground banks, and anti-money laundering supervision [32]. Although stablecoins are technologically decentralized, every link of their use in China is inseparable from human operation—as long as these human factors are controlled by law, it will be difficult for stablecoins to circulate freely. In the future, with changes in social security reform, tax burden adjustments, and the degree of financial openness, the choices of young people and the direction of gray industry funds may also change. The penetration of stablecoins is a reflection of social problems. Only by genuinely reducing the hidden burdens on ordinary people, guiding private financial demand towards formal channels, and severely cracking down on gangs that use stablecoins for illegal activities can the gray area be truly compressed and systemic financial risks be prevented.

An In-depth Research Report on the Penetration Paths of Stablecoins in China