Beijing Seeks More Control Over How Its Residents Invest Their Money, Expert Says

A New Analysis

In the last decade, U.S. stocks made 10 times greater gains than China’s domestic stocks. Beijing stopped mainland Chinese investors from investing in foreign exchange markets to prevent further capital outflow. Experts believe the regime wants to exert more control over how its citizens invest their money.

According to the Chinese central bank’s monthly market operation report, February 23, the Shanghai Composite Index closed at 3255.7 points at January’s end, a 5.4 per cent increase month-on month, while the Shenzhen Component Index closed on 12,001.3 points, an 8.9 per cent increase month-on month.

The Shanghai Composite Index (SSE Index), a stock market index that tracks all stocks traded on the Shanghai Stock Exchange (SSE), is available. Since July 15, 1991 it has been published in real-time and is one the most influential indices on China’s capital market. In the meantime, the Shenzhen Component Index is (SZSE Index), an index of 500 stocks which are traded at the Shenzhen Stock Exchange. This is also an important point of reference for Chinese financial markets.

The US Stocks have made 10X more profit than Chinese stocks in the past decade

On the other hand, the CSI 300 index, launched in April 2005, is a capitalization-weighted index based on the top 300 stocks traded on SSE and SZSE.

The indices reflect the trend of each stock market. SSE and SZSE Indices are indicative of specific markets. However, the CSI 300 Index comprehensively reflects China’s overall trend.

The CSI 300 Closed at 3,204.16 point on Jan. 1, 2010; 13 years later on February 1, 2023, it was at 4,061.05 point. That’s an increase of 856.89, or 27 percent, over a 13 year period.

The S&P 500The, which is one of the most popular equity indices that measures the performance of the U.S stock market, closed at 1,073.87 Jan. 1, 2010 and closed at 4,061.05. 12 years later, it closed at 4,061.05. This was a 2987.18 point increase, or 278 per cent, which is more than 10 times as much as the gains of China’s CSI300 over the same period.

China Bans Cross Border Brokers to Prevent Capital Exodus

China has made cross-border online brokerage companies the target of a regulatory storm. Now it makes it impossible for offshore investors to open new accounts to speculate on foreign exchange markets.

China Securities Regulatory Commission, (CSRS), began rectifying the cross-border securities businesses of Futu Holdings & UP Fintech Holdings (“Tiger Securities”) on Dec. 30, 2022.

The ministry claimed that two companies transacted cross-border securities business without approval for domestic investors. “illegal” Business operations must be conducted in accordance with the applicable laws and regulations of the country.

On February 15, the spokesperson for CSRS told reporters that Tiger Securities and Futu Holdings were not allowed to accept new onshore investors. While existing clients can trade via brokerages, additional fund transfers to non-compliant accounts will be prohibited.

“The Chinese Communist Party (CCP) wants to control the flow of the funds of ordinary people in China. It has cut off the investment channels of ordinary people, hoping to drive their money back to the Chinese economy through preferred channels, such as the recently launched real estate private equity investment fund,” Fang Qi, a UK-based senior Chinese finance specialist, spoke to The Epoch Times on February 24,

He also stated that dual currency credit cards were also being suspended along with restrictions on Futu Holdings, Tiger Securities and Futu Holdings. This type of credit card cannot be settled at home or abroad in Chinese Yuan.

“The CCP cannot stop the outflow of capital because all foreign-funded enterprises are leaving, such as Apple, Sony, and Toyota, have started moving their industrial supply chains out of the country while temporarily retaining the production capacity in China. They will definitely pull out their funds when they leave,” Fang said.

“The CCP is more worried that this trend will spread to Taiwanese, Korean, German, or other foreign-based companies operating in mainland China. However, this kind of outflow is inevitable due to geopolitical reasons.”

Since 2022, large-scale withdrawals of foreign investment from China’s market have been taking place.

A December 2022 research report by Xiong Yi (Chief Economist at Deutsche Bank China) shows that capital outflows from China’s stock and bond markets reached $100 billion per monthly in the first half 2022 and dropped to $50 billion in the second half 2022.

Analysis: ‘There is Rigid Demand for Cross-Border Stock Trading in China’

Chinese authorities stated that residents of mainland China cannot either invest in overseas capital markets directly through Qualified Domestic Institutional Investors(QDII) nor can they buy and sell stocks directly via cross-boundary investment channels like the Shanghai-Hong Kong stock connect and Shenzhen Hong Kong stock connect with certain thresholds.

Futu Holdings or Tiger Securities, however, have a lower investment threshold than stock connects and QDII. They also offer lower commissions and are subject to fewer restrictions.

A report by China Economic Weekly in August 2013 stated that over 300,000. People in China were living at the time. “bypassed” The state-approved channels for investing in U.S. stocks. According to some reports, investors from mainland China have opened accounts via the internet with foreign brokers. Brokerages in Hong Kong offer securities accounts that allow clients to trade in securities markets across the globe, including the United States.

According to the report, investors are more inclined to invest in U.S. stocks than China’s A.share. The report was also different from the view of China’s Securities Regulatory Commission at that time. It was. “planning to launch a qualified domestic individual investor system as soon as possible.”

However, the Chinese regulator’s attitude has changed.

Yang Bo, the founder and CEO of Qingbo Tech in Shanghai, wrote an article for Fortune China on February 15, entitled “The supervision of cross-border stock trading has been strengthened. What is the understanding of the overseas stock investment needs of Chinese people?”

The article stated that even though the authorities had suspended the opening of brokerage accounts, there was a real problem with existing clients. This is why they haven’t been suspended.

“If the trading authority of these brokerage accounts is closed across the board, considering these accounts are in overseas markets, if overseas exchanges do not cooperate [with the new Chinese regulatory rules], I am afraid they will not be able to land,” Yang wrote. He said that the CCP would not be able implement them

“,,, if the [foreign] exchanges are willing to cooperate, considering that many of these accounts are investment stocks for the company, under the wave of selling, it is unpredictable whether the Hang Seng Tech Index or the Chinese concept stocks that have just come out of the UCU, will experience another sharp drop.”

Hang Seng Tech Index lists the top 30 technology companies listed in Hong Kong.

Yang said that some mainland Chinese residents need cross-border financial management. This includes those who work in technology companies listed on the Hong Kong stock exchanges or the U.S. stock markets. These employees often have stock options, or shares in their companies.

“Chinese people’s overseas financial management needs are actual needs, including but not limited to cross-border investments such as stocks and real estate. However, under the existing regulatory logic, it is also a gray area. From all kinds of gray or even underground channels to legal channels, I am afraid it is probably a topic that urgently needs in-depth consideration.”