China has been targeting cross-border internet brokerage firms in a regulatory storm. Those firms could be accused of illegal financial business if they provide overseas securities investment services to Chinese clients, according to a high-ranking financial official.
On Oct. 24, Sun Tianqi, director of the Bureau of Financial Stability of China’s Central Bank, said at the 3rd Bund Summit in Shanghai that cross-border internet brokerages are “driving without a license and are illegal financial activities” in China, according to the mouthpiece media.
Some foreign securities operators using the internet platform and serving exclusively for domestic investors are defined as “cross-border delivery” that China “has not recognized,” Sun said, noting they are not approved with the relevant licenses issued by the Chinese Community Party (CCP), and it is obviously no use to just hold a foreign license in China.
In response to China’s strict rules, on Oct. 28 overseas-listed internet brokerage firms Futu and Tiger saw their shares falling accordingly; Futu’s U.S. shares dropped 30 percent for one time, 13 percent for the day.
On Oct. 29 Futu’s shares further weakened, slumping by 9 percent to $53.47, a slash of 73 percent compared to $204 early this year, which trimmed its cumulative growth to 9 percent for the year, said Hong Kong Economic Times.
Dr. Frank Tian Xie, a John M. Olin Palmetto Chair Professor in Business and Professor of Marketing at the University of South Carolina Aiken, told The Epoch Times that the CCP—when it joined the WTO 20 years ago—vowed to open China’s financial markets, but now the ruling Party “not only failed to fulfill its promise, but also treats as illegal Chinese people who buy financial products outside of China,” which, according to Xie, “is a violation of citizens’ rights.”
According to a private wealth report of 2021 by China Merchants Bank, Chinese residents’ overseas investments grew rapidly, with a compound average annual growth rate of 32 percent from 2008 to 2020, placing them in front of all other investable categories.
Futu owns more than 15.5 million registered users and more than 1 million clients with assets, as of the second quarter—the total assets of Futu and Tiger’s clients reached $80.9 billion by the end of the first quarter. In 2022, Chinese investors are expected to invest $3.5 trillion overseas, of which 27.7 percent (about $970 billion) will be spent in the stock market, said Guosen Securities (pdf), a Chinese state-owned financial services company, citing statistics from Oliver Wyman, an American management consulting firm and iResearch, a Chinese consulting company.
Liang Jiewen, investment manager of Wocom Securities based in Hong Kong, told The Epoch Times that if the scale of Chinese clients of those overseas internet brokerage firms mounts to a certain quantity, coupled with the snowballing effect of capital, it would more or less shake the CCP’s exchange rate system, and the regime would have no way to monitor it.
“There is no way [for the CCP] to know how much Chinese Yuan is involved, or how many investors are exchanging foreign currency or buying stocks through this channel, that is, overseas stock assets,” Liang said.
A wave of stock dumping will be triggered if mainland China initiates an overall crackdown over cross-border internet brokers, also a turmoil for global stock markets, reported Hong Kong Oriental Daily News.
Xie said China’s current situation is not enough to heavily impact the global stock market.
However, since investing in overseas stocks will lead to a massive loss of foreign exchange in China, the CCP is addressing this major problem by restraining capital outflow, Xie said.
“Because the CCP has seen the shortage tension from foreign exchange—for example, Evergrande and other real estate companies cannot repay their foreign debts—the Central Bank and the Foreign Exchange Bureau have been forced to rescue them, but they can not make it,” added the economist, therefore, “the CCP must curb capital outflow and cut off overseas investment.”
