China's grip on overseas capital is tightening

Futu Holdings

26/05/2026 04:44

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

By Ka Sing Chan

HONG KONG, May 26 (Reuters Breakingviews) - Slightly sudden, but not out of the blue. Beijing’s crackdown on online brokers escalates a campaign against illegal cross-border trading that has been building for years. As stock markets rally and fiscal strains deepen, China's scrutiny on offshore investments by its wealthy individuals and large companies will keep intensifying.

The China Securities Regulatory Commission on Friday fined Futu, Tiger and Longbridge, for violations including offering mainland Chinese investors access to overseas stocks without licenses and disrupting market order. Shares of Nasdaq-listed Futu FUTU.O plunged 28% on the same day: its total penalty amounts to 1.85 billion yuan ($271 million), a fifth of the company's annual net income in 2025.

Despite Beijing's initial bar on online brokerages soliciting new onshore investors back in 2022, Futu's bottom line has nearly doubled each year since. Now Beijing is going a step further, ordering all “illegal” accounts to be wound down within two years. Watchdogs in Hong Kong, a popular transit stop for outbound capital, are tightening controls in tandem.

Yet Beijing is not calling time on overseas investments. Demand for these is likely to remain robust with the outperformance of U.S. stocks: since the start of 2022, the S&P 500 .SPX has climbed about 55%, compared with a gain of roughly 13% for the Shanghai Composite Index .SSEC. Indeed, the online broker crackdown will only impact some $32 billion of financial assets including stocks in the Asian hub, per Citic Securities estimates, against Hong Kong's $6.2 trillion market capitalisation.

Instead, China appears to be pushing this demand into approved channels for overseas investing including the Qualified Domestic Institutional Investor scheme and the Southbound Connect, which allows mainland Chinese investors to trade eligible shares and exchange-traded funds listed on the Hong Kong Stock Exchange. These more formal routes are easier for China's tax man to scrutinise for capital gains.

That's an urgent priority. China’s fiscal revenues fell 1.7% to 21.6 trillion yuan in 2025, the first annual drop since the Covid pandemic. Contributions from state firms, whose offshore investments have often sat in a regulatory grey zone, are becoming more important. Little wonder that officials are encouraging these companies to repatriate overseas earnings and deploy more funds at home, including through share buybacks: Beijing is drawing capital back under its gaze.

CONTEXT NEWS

The China Securities Regulatory Commission on May 22 said it will penalise brokerages including Futu Securities and Tiger for illegal cross-border business operations. The Nasdaq-listed Futu said on the same day the total penalty amounts to 1.85 billion yuan ($271 million).

Online brokers Tiger, Futu and Longbridge would be penalised for soliciting ‌business in China without an onshore licence, the securities regulator said. Shares of Futu and Tiger parent UP Fintech Holding fell 28% and 25% in U.S. trade on May 22.

        In a broader move, the CSRC and seven other government departments issued a joint implementation plan, approved by the State Council, to eradicate illegal cross-border securities, futures, and fund operations within a two-year rectification period.

Broker stocks tumbled on Beijing's cross-border trading crackdown https://www.reuters.com/graphics/BRV-BRV/byvrnyrbwve/chart.png

(Editing by Una Galani; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))