The first sign that Chinese authorities were making it harder for Stephanie Peng to buy overseas shares was a pop-up message on her phone, blocking access to her securities account at Citic Bank International unless she provided personal identification documents.
“I called my account manager for two days and couldn’t get hold of him,” said Peng, a 38-year-old clerk in Shanghai. “It caught me off guard. I don’t recall needing this kind of verification before just to trade.”
The curbs that surprised Peng were part of a broader crackdown in recent weeks by authorities in Beijing keen to limit Chinese citizens’ exposure to US equity markets. It came within days of Elon Musk’s SpaceX unveiling details of an initial public offering expected to ignite huge interest in US tech stocks. Anthropic this week also filed paperwork for an IPO.
The China Securities Regulatory Commission told the country’s investors only to buy overseas stocks through official channels, cracking down on brokerages that enabled them to do so through a loophole. CSRC fined three companies, and Hong Kong authorities quickly followed suit, warning and launching reviews of 12 more.
While existing investors may continue to access accounts at those brokers for two years, they can only sell assets and withdraw funds. They cannot buy new shares.
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As much as $32bn of mainland investor assets may face such curbs or ultimately have to be unwound, according to a calculation by Citic Securities. More broadly, all security brokers in China and Hong Kong have been told to ensure accounts that invest in overseas shares are fully compliant.
Chinese authorities have long sought to curb capital flight, and the latest moves are “the inevitable punctuation mark in a sentence regulators have drafted a number of years ago”, said Shivagar Siva, a financial lawyer based in Hong Kong. “Capital movements from the mainland that fail to comply with prescribed channels are void.”
If the new measures are strictly enforced, the clampdown could rattle hundreds of thousands of mainland investors, keen to find ways to make money as the country’s property market has crashed.
The three brokerages targeted by regulators for providing unlicensed cross-border securities businesses were Futu Holdings, Tiger Brokers and Longbridge. The US-listed shares of Futu and Tiger fell almost 30 per cent following news of the fines, though they have since recovered. Tiger said it would “strictly comply with regulatory requirements and actively co-operate with the relevant process”. Futu said it would comply with regulations, as did Longbridge.
Hong Kong units of mainland-headquartered securities firms could also be hit by the crackdown as mainland investors make up much of their client base in the Chinese territory.
Demand for overseas shares clearly exists. Investments in one officially sanctioned fund — mutual fund products under the QDII programme — have more than tripled in the past two years to Rmb372.9bn ($55bn), according to Wind. Retail investments make up more than 85 per cent of the programme.
Investors such as Peng are now weighing what to do next.
Her Rmb2mn ($296,000) US stock portfolio includes Advanced Micro Devices shares that she bought at about $30 per share. AMD’s shares are now close to $500.
“I might cash out and move the money to another jurisdiction, such as the US or Singapore,” Peng said. “It wasn’t easy to open this account, and my husband and I spent a lot of energy moving some of our assets out. Why bother moving them back again?”
Jean Yang, an account manager at the Hong Kong unit of a Chinese brokerage, said some of her clients perceived the crackdown as a bearish signal for US assets.
“We’ve had a few clients who now want to switch to renminbi assets,” Yang said. “They believe China is in a stronger position now, and that the US dollar could decline further.”
Zhao Ming, a Beijing-based investor who opened a Longbridge securities account in Hong Kong two years ago, has redeemed all his holdings in US structured deposits, transferred them into another banking account and is seeking to convert them into renminbi.
“I was traumatised by the previous boom and bust in the stock market, so I don’t have much appetite for equities,” Zhao said. “SpaceX or OpenAI may sound exciting, but you never know when the bubble will burst.”
Regulators were failing to address the root cause of the problem, Zhao said. “There just aren’t enough attractive, low-risk financial products onshore,” Zhao said. “The annualised yield of time deposits in yuan is now what? Less than 2 per cent.”
As banks and securities firms in Hong Kong review accounts linked to mainland Chinese citizens and tighten criteria for new mainland accounts, Hong Kong residents or foreign passport holders remain largely insulated from the crackdown and are still rushing to open accounts.
“Banks and brokerages have been busy reviewing problematic accounts . . . fearing fines like Futu’s, so account-opening standards are tightening in practice,” said Eric Huang, head of a Hong Kong family office.
“But our work helping clients with legitimate overseas IDs open securities accounts in Hong Kong is continuing as normal,” Huang said, adding that he had received inquiries from clients keen to become non-mainland tax residents by, for example, securing Hong Kong IDs.
Ruby Liu, a 36-year-old insurance agent who moved from mainland China to Hong Kong two years ago, said she was about to open a Futu securities account using her Hong Kong identity documents.
“The crackdown isn’t necessarily bad news for me,” she said. “If anything, it might mean fewer people piling into SpaceX IPO allocations, which gives me a better chance to buy in.”
With contributions from William Sandlund in Hong Kong and Cheng Leng in Beijing
