Following Beijing’s efforts to curb capital outflows, launching its most severe cross-border stock trading crackdown to date, Chinese retail investors are rushing to sell overseas stocks or seek alternative ways to conduct trading.
Monday (May 25), Bloomberg reported that Chinese retail investors who bought overseas stocks through Futu Securities, Tiger Brokers, and Changjiang Securities are weighing risks and making plans for their next steps. Most professionals hold a pessimistic view on the policy outlook, believing that the tightening of regulations by the Chinese Communist Party (CCP) this time differs fundamentally from previous crackdowns.
Last Friday, the China Securities Regulatory Commission imposed fines totaling over $330 million on Futu Securities International (Hong Kong), Tiger Brokers, and Changjiang Securities (Hong Kong) for operating without authorization in mainland China.
Richard Wang, a Chinese tech professional working in artificial intelligence (AI) in California, held around $120,000 worth of stock in Futu Securities. Following Beijing’s announcement last Friday (22nd), he immediately sold all his U.S. stocks and is waiting for the Hong Kong stock market to reopen on Tuesday to sell the remaining holdings.
“Beijing is worried about intensifying capital outflows, so they’re closing off cross-border trading channels, forcing funds to return to the domestic market,” Wang told Bloomberg. “So, I choose to exit.”
Bloomberg reported that this crackdown signifies an escalation in regulatory efforts by the CCP since the end of 2022. Back then, Beijing required online brokerages to rectify illegal operations and cease soliciting new domestic investors.
Daisy Qin, a bank employee in Chengdu, revealed that after the authorities’ directive in 2022, she used a fake address to open a stock account with Futu in Hong Kong.
Throughout the weekend after the new regulations were issued, she hurriedly contacted other brokerages to find alternative solutions, only to find that account opening requirements were further tightened. Now, she is preparing to sell stocks worth 2 million Chinese yuan.
“Some people are now preparing to switch to other brokerages in Singapore or the U.S., but I won’t wait for specific rules to be issued. I also don’t intend to open a new account,” she said. “I will immediately sell all holdings to mitigate risks.”
Many retail investors are adopting a wait-and-see approach, speculating that there may be ways to circumvent the new regulations, such as through arrangements like marrying non-Chinese citizens.
According to China International Capital Corporation’s assessment, this crackdown could impact assets in Hong Kong up to HK$250 billion (US$32 billion), with Futu alone facing losses ranging from HK$150-180 billion. Bloomberg data shows that Futu underwrote IPOs for 30 companies in Hong Kong this year – most of which are mainland Chinese companies – surpassing any other financial institution.
This sudden move has triggered significant market volatility, with the Nasdaq Golden Dragon China Index falling 2.2% last Friday, causing Futu’s market value to plummet by more than a quarter. This action may further constrain liquidity in the Hong Kong market and impede mainland companies’ initial public offerings (IPOs) in Hong Kong, as demand from mainland Chinese investors will likely shrink.
Bloomberg reported that insiders revealed that some Chinese brokerage firms’ Hong Kong branches are awaiting further clarity on the policy to assess the extent of its impact before deciding whether to adjust their operations. These insiders requested anonymity due to private information involved. Some still hope that existing accounts opened before 2022 may not be affected by this cleanup.
The CCP authorities declared last Friday that online brokerages would be allowed to continue serving existing customers in 2022, but all so-called “illegal” existing accounts must be liquidated within two years.
Allen Wang, a partner at Shanghai Jincheng Tongda Law Firm, disclosed that some clients have already started transferring offshore stock trading to Chinese banks’ Hong Kong branches or companies like HSBC, which still permit cross-border transactions. He stated that investors do not need to sell off their holdings as accounts can be transferred through custodians.
However, he pointed out that although banks have been an option for a long time, their fees are higher and efficiency lower than brokerage firms like Futu, making them less attractive.
“At present, the policy is still unclear, but clients are worried that banks may also be prohibited from trading (foreign stocks),” he added.
A bigger backdrop to the authorities’ latest move is the CCP’s increased efforts in recent years to tax residents’ overseas income, including gains from overseas stock trading.
The Beijing authorities have been striving to strengthen taxation on residents’ overseas income. With a sharp decline in land transfer revenue and local governments heavily indebted, government entities at all levels in China have been seeking ways to bolster fiscal revenue.
Bloomberg data indicates that around $1 trillion in “hot money” flowed out of China in 2025, marking the highest year of capital outflows recorded since 2006.
Chen Li, Chief Economist at Dongwu Securities, stated that authorities mandating residents to repatriate overseas assets through official channels like the Shanghai-Hong Kong Stock Connect and Qualified Domestic Institutional Investors (QDII) will greatly simplify the process of taxing citizens’ overseas assets.
Dong Yizhi from Joint Law Firm also informed Bloomberg, “I have always advised caution because I believe this round of tightening regulations is fundamentally different from previous ones.”
“If it eventually evolves into enhancing data sharing on accounts and financial activities… I wouldn’t be surprised at all,” he remarked.