China's CSRC Cracks Down on Illegal Cross-Border Stock Trading, Claims Chinese Assets Are Attractive

The China Securities Regulatory Commission (CSRC) and seven other departments announced in May a plan to crack down on illegal cross-border business activities by overseas securities firms. The CSRC recently stated that the measures are intended to "purify" China's capital market and protect investors. When asked whether the tightening of capital controls is intended to guide funds back into the domestic capital market, the CSRC claimed that Chinese assets are "attractive."

On May 22, the CSRC and seven other departments jointly issued the "Implementation Plan for Comprehensive Crackdown on Illegal Cross-Border Securities, Futures, and Fund Business Activities," which will take two years to completely eliminate illegal cross-border securities trading by overseas brokerages.

On the same day, the CSRC announced that Tiger Brokers (NZ) Limited, Futu Securities International (Hong Kong) Limited, and Changqiao Securities (Hong Kong) Limited had engaged in illegal cross-border business practices that violate Chinese securities, futures, and fund laws and regulations. The CSRC plans to confiscate the illegal gains of these three companies and impose severe penalties according to the law.

Reuters reported on the 8th that since the CSRC announced the relevant measures, Chinese investors have been confused about how to handle funds and investments in their overseas brokerage accounts. According to estimates by Chinese brokerage firm Kaiyuan Securities, the value of the related accounts is approximately $54 billion.

In a statement to Reuters, the CSRC said that the crackdown on overseas brokerages illegally assisting Chinese investors in purchasing overseas stocks does not affect the overseas business of the relevant brokerages. Overseas brokerages can still continue to provide legal overseas services to Chinese clients.

The CSRC also stated that the rectification actions will not affect the safety of investors' assets. The relevant accounts will not be forcibly closed, and the assets in the accounts will not be forcibly liquidated. Investors can sell assets and transfer funds out of the affected accounts.

The CSRC stated that the crackdown aims to "purify" China's capital market, protect investors, and combat illegal capital outflows. "No country or region will tolerate overseas institutions engaging in illegal activities within its territory," and such activities must be severely cracked down on because they "seriously disrupt market order, increase financial risks, and harm the interests of investors."

In response to Reuters' question about whether the tightening of capital controls is intended to guide funds back into the domestic capital market, the CSRC claimed that Chinese assets are "attractive" but did not provide further explanation. It also welcomed domestic and foreign investors to participate in China's capital market and share the dividends of China's high-quality economic growth.