File Photo: On November 10, 2021, a container ship docks outside the Victoria Harbour at the Kwai Tsing Container Terminal in Hong Kong, China. (Photo by Anthony Kwan/Getty Images)
[People News] As the prospects for China's economic recovery appear dim, more and more Chinese citizens are looking for ways to transfer their assets overseas. In response, the Chinese Communist Party authorities have recently initiated a comprehensive crackdown on offshore trading platforms such as Futu, Tiger, and Changqiao to prevent capital outflow. Consequently, several banks and brokers in Hong Kong have swiftly suspended the opening of accounts for mainland investors.
A report by the Hong Kong Economic Journal on June 1 indicated that almost at the same time penalties were announced for the three brokers, the Hong Kong Monetary Authority (HKMA) sent a letter to banks, mandating that they implement additional measures when opening and managing investment accounts for mainland investors to meet regulatory requirements.
The additional measures proposed by the HKMA for banks include: conducting account opening verifications, closing investment accounts opened with suspicious or forged documents, shutting down accounts with zero balances, and requiring mainland investors to provide a written declaration when opening new accounts, confirming that all funds used for investment activities and related settlements originate from legal sources outside mainland China.
The report also disclosed that ICBC Asia has issued an internal notice to suspend the opening of new investment accounts for mainland investors. Meanwhile, HSBC continues to allow mainland investors to open accounts, but this must be done through online channels and requires a written declaration.
In a separate report, the newspaper noted that following the actions taken by the China Securities Regulatory Commission, although the Hong Kong Securities and Futures Commission stated that local brokers could still open new investment accounts for mainland investors (those using mainland identity documents), concerns regarding regulatory boundaries within the industry seem to persist.
Recent reports indicate that over the past week, several brokerage firms have tightened the requirements for mainland clients wishing to open accounts in Hong Kong, with some even suspending account openings for mainland investors altogether.
In light of this situation, a Reuters report highlighted that certain banks and brokerage firms in Hong Kong, fearing they might breach the regulatory boundaries set by the Chinese Communist Party (CCP), have recently tightened or even halted the opening of investment accounts for some mainland Chinese investors. The market widely believes that this action is linked to Beijing's recent intensified crackdown on 'illegal cross-border securities trading' and efforts to curb capital outflow, reflecting the heightened sensitivity of Hong Kong's financial institutions to regulatory risks.
Additionally, a report from Newtalk states that as an increasing number of Chinese citizens invest in overseas stock markets, it is estimated that last year, up to $1 trillion in funds managed to evade regulations and leave China. This unprecedented capital exodus has caused panic within the CCP, which has not only launched a stringent crackdown on overseas brokerage firms but also plans to implement large-scale taxation on overseas capital gains by 2025, in a desperate attempt to redirect capital back into the domestic market.
On May 22 of this year, the CCP accused Hong Kong's Futu Securities, Long Bridge Securities, and Singapore's Tiger Brokers of 'operating without a license' in mainland China, imposing a hefty fine of $330 million and confiscating illegal gains. This means that existing mainland clients can only liquidate their holdings and withdraw funds, with no allowance for new purchases or deposits, and related websites and applications must be completely shut down within two years.
Over the past few decades, the Chinese Communist Party has imposed strict restrictions on capital outflow, allowing individuals to purchase foreign currency up to 50,000 US dollars per year, and only for non-investment purposes. To trade in overseas stock markets, individuals must use strictly regulated channels such as the 'Shanghai-Hong Kong Stock Connect' and 'Shenzhen-Hong Kong Stock Connect'; any other unapproved overseas transactions are deemed illegal. △
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