The Chinese government recently imposed heavy penalties on three overseas Chinese-funded securities firms – Futu, Tiger, and Changqiao, involving asset confiscation and “illegal gains”, causing a tremor in the market. Among them, the personal wealth of Futu Holdings founder Li Hua shrank by more than a quarter, evaporating $1.7 billion in a single day.
According to the Bloomberg Billionaires Index, as of the 22nd, the wealth of Futu’s founder and CEO Li Hua shrank by $1.7 billion, dropping to $4.7 billion. At the end of October last year, his net worth had reached as high as $10.1 billion, now less than half of that. Most of Li Hua’s wealth comes from his holdings in the U.S.-listed Futu Holdings.
On the 22nd, the China Securities Regulatory Commission stated that Futu, Tiger Securities, and Changqiao Securities and other securities firms had engaged in securities business on the mainland without permission, and are planning to impose fines on these firms. Futu subsequently stated that the China Securities Regulatory Commission intends to impose a fine of approximately 1.85 billion RMB on the company.
Futu’s stock price plummeted by 28% on the 22nd, marking the largest single-day decline in over three years.
Tiger, Futu, and Changqiao are all cross-border internet securities firms serving investors in mainland China. Their main business model is to use Hong Kong or overseas licenses to provide services such as opening accounts, trading, and fund transfers for mainland Chinese people through websites, apps, self-media promotions, and domestic partner companies. In recent years, they have attracted a large number of middle-class investors and young retail investors from mainland China.
Behind Futu Securities is Tencent. The largest shareholder is founder Li Hua, who was the 18th employee of Tencent; Tencent is currently the second-largest shareholder of Futu.
Behind Tiger Securities is Xiaomi and the shadow of Chinese-backed securities firms. The largest shareholder is founder Wu Tianhua, with Xiaomi Group as the second-largest shareholder of Tiger. Other shareholders include Tang Binsen, Huachuang Capital, and Zhen Fund.
The founding team of Changqiao Securities has a strong Alibaba background. The founder and management team mainly come from Alibaba. The important strategic major shareholder is Yuanjing Capital, a well-known venture capital institution founded by former Alibaba executive Wu Yongming.
Commentator Tang Jingyuan pointed out that the sudden heavy penalties imposed by the Chinese government on cross-border securities firms are superficially regulatory but substantively a systematic financial harvesting operation. Its core goal is to cut off the channels for Chinese people to invest in overseas markets and prevent the continuous outflow of funds.
Regarding why the Chinese government suddenly turned its back, Tang Jingyuan believes that it reflects two dangerous signals. First, “any private property is not truly protected in the Chinese system”. Second, this means that the Chinese economic crisis may have worsened to a considerable degree. He described this action as equivalent to “a supervision method similar to raiding one’s home”.