China’s cross-border crackdown smacks of Nasdaq envy

Shuli Ren, Bloomberg

In a surprise move, China punished three brokerages for offering mainland investors access to overseas stocks without licenses, escalating efforts to control cross-border capital flows. The question is why now.

Beijing’s campaign against online brokers is not new. In late 2022, authorities asked Futu Holdings and Tiger Brokers to stop soliciting mainland clients. But this latest tightening is materially different. “All illegal gains” earned by Futu, Tiger and Longbridge Securities will be confiscated, regulators said Friday.

All existing mainland accounts must also be liquidated within two years. During this period, overseas institutions are barred from accepting new inflows or facilitating new buy orders. Futu and Up Fintech lost 28% and 25% of their market value Friday, respectively.

Is Beijing experiencing a bit of Nasdaq envy?

Futu, the most prominent of the three, grew revenue by two-thirds last year to HK$22.8 billion ($2.9 billion). Mainland customers account for about 13% of clients but contributed 20% of total revenue in 2025, according to JPMorgan Chase & Co. estimates.

Its success reflects mainland investors’ enthusiasm for American tech firms, especially companies tied to the AI supply chain. In the December quarter, US-market trading volume on Futu rose 17% quarter-on-quarter to HK$3 trillion, while Hong Kong turnover fell by almost a third. US-listed Chinese stocks contributed less than 10% of total US turnover.

Chinese appetite for US equities is also visible in the few onshore index funds available. The GF Nasdaq 100 ETF, Bosera S&P 500 ETF and Guotai Nasdaq 100 ETF all trade well above net asset value.

Mainland investors have limited channels to invest abroad. Those with at least 500,000 yuan ($73,667) can buy Hong Kong-listed shares through the stock connect program. Exposure to other markets requires funds participating in the Qualified Domestic Institutional Investor, or QDII, scheme.

The quota Beijing allocates remains tiny. In April, authorities added $5.3 billion — the first increase since last June — bringing the total to $176 billion. That is minimal for a country with 171 trillion yuan in household savings.

The government likely hopes the crackdown will redirect retail inflows into domestic equities. More likely, investors will seek new workarounds for diversification. Some may head to Hong Kong, where capital restrictions are limited and wealth management services remain accessible.

Ultimately, this heavy-handed move looks like an admission of defeat. Even as China tries to build its own Nvidia, the US market still hosts the world’s leading tech companies.

This earnings season highlights the gap: firms in the S&P 500 increased sales by 11% and earnings by 27%, while companies on the Shanghai Shenzhen CSI 300 Index posted growth of just 3% and 4%.

China’s regulators have deployed plenty of sticks. Perhaps it is time to offer some carrots, too. Beijing should meaningfully expand the QDII quota. Otherwise, its promises of financial opening-up risk sounding increasingly hollow.

[Abridged]

Courtesy Bloomberg/Shuli Ren