China Launches Two-Year Campaign on Cross-Border Securities Trading

China's securities regulator, the China Securities Regulatory Commission (CSRC), has initiated a significant two-year campaign targeting cross-border stock trading, signaling Beijing's intensified efforts to control capital outflows. The investigation into major brokerage firms like Futu, Longbridge, and Tiger Brokers highlights the government's determination to plug perceived loopholes in its financial system.

Historically, China has restricted direct individual investment in overseas markets, channeling transactions through licensed intermediaries. However, special administrative regions like Hong Kong have offered a different regulatory environment, allowing mainland investors to access international markets via brokers registered there. Beijing has been progressively closing these avenues, with a ban on individual investors opening accounts with similar brokers implemented in 2022.

The current investigation accuses these firms of conducting securities business in China without the necessary approvals, a direct violation of Chinese securities law. This move is part of a broader coordinated effort involving multiple government bodies, including the Ministry of Public Security and the People's Bank of China, to eradicate illegal cross-border financial activities. For firms like Futu, whose mainland Chinese clients constitute about 13% of its user base, this crackdown presents a significant challenge, prompting commitments to cooperate with regulators.

Economists view this campaign as a reflection of Beijing's strategic objective to gain "absolute control" over cross-border capital flows. In a period of economic pressure, the government prioritizes maintaining stability within its domestic financial system by preventing capital from easily exiting the country. This regulatory tightening is a key component of China's broader economic strategy.

“

The core objective of China now is to gain 'absolute control' over cross-border capital flows and to close all 'loopholes' to prevent investment money from flowing out of the domestic financial system.