Cross-border crackdown part of keeping China’s capital market stable
The penalties handed out to leading brokerages are harsh, but Beijing must show it means business as it cleans up China’s capital market
The penalties are harsh, but the firms have only themselves to blame. In recent years, mainland authorities have warned banks and brokerages not to exploit loopholes to help clients breach capital controls with foreign investments.
In addition to the CSRC, the central bank, the cybersecurity regulator and five other agencies will work jointly to clean up such misconduct by mainland brokerages. In coordination with mainland authorities, the Securities and Futures Commission in Hong Kong has stepped up measures against forged documents and money laundering. It has also moved to upgrade account opening standards among local brokers.
Beijing needs to show it means business as it works to clean up the country’s capital market. Domestic investors must buy overseas securities through official channels such as the Stock Connect scheme with Hong Kong. However, Beijing-approved funds with access to investing in overseas stocks have run out of quotas amid high demand. Regulators are also concerned that those funds are mostly trading at significant premiums to their net asset values.
An estimate by Citic Securities puts the total assets owned by mainland Chinese investors with the Hong Kong trading accounts of brokerages such as Futu and Tiger Brokers at about HK$250 billion (US$31.9 billion). While the crackdown might have a short-term psychological effect, it’s unlikely to affect the Hong Kong stock market, the third-largest in the Asia-Pacific, with a market capitalisation of around US$7.3 trillion.
As US equities hit record highs – especially as the investment craze in artificial intelligence benefits even mainland tech firms listed in Hong Kong and the United States – many domestic investors are clamouring for foreign stocks. For mainland authorities, stability in the capital market and foreign exchanges is paramount. Chinese regulators are doing their job. The time to put the house in order is when the party is still going strong, not after it has crashed.