China Dismisses Forced Liquidation Fears Amid Crackdown on Unauthorized Outbound Investment

China's Crackdown on Cross-Border Investment: No Forced Closure of Offshore Accounts

June 8 - The China Securities Regulatory Commission (CSRC) has clarified that the recent crackdown on "illegal" cross-border investment will not lead to the forced closure of mainlanders' offshore accounts and the liquidation of their assets. This statement comes as a relief to investors, who had been worried about the fate of $54 billion worth of assets.

The crackdown, which was announced on May 22, aimed to target overseas brokers for "illegally" helping Chinese investors buy shares in foreign markets. However, the CSRC has stated that the clampdown does not affect the business activities of overseas brokerages offshore. This means that overseas brokerages can continue to offer legitimate offshore services to mainland clients.

The latest statement from the CSRC has brought a sense of clarity to the situation, amid growing confusion among Chinese investors. It has also alleviated fears of forced liquidation, which triggered a sell-off in U.S.-listed Chinese stocks immediately after the crackdown was announced. The CSRC has assured investors that the safety of their assets will not be affected by the rectification campaign.

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Existing accounts will not be forcibly closed, and assets held in those accounts will not be subject to mandatory cleanup. Onshore Chinese investors can sell assets and move money out of the affected accounts, while brokers' provision of illicit services on the mainland, including via websites and trading software, will be terminated in two years.

Some major overseas brokerages, including Tiger, Futu, and Longbridge, have informed their onshore Chinese clients that starting mid-June, they can no longer open new accounts, add positions, or move in fresh money. However, offshore services will remain intact.

The CSRC has stated that its policy intention is clear: the crackdown is aimed at "purifying" China's capital markets, protecting investors, and "hitting" illegal capital outflows from the country. The regulator has emphasized that no country or region would tolerate overseas institutions conducting illegal activities within its border, and such actions must be dealt with ruthlessly as they "seriously disrupt market order, increase financial risks, and harm investors."

When asked if the tightening of capital controls also seeks to nudge money into domestic capital markets, the CSRC responded that Chinese assets were "appealing." However, the regulator did not elaborate further. The CSRC has welcomed both domestic and international investors to participate in China's capital markets and share the dividends of the country's high-quality economic growth.

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Note: The table above indicates that the offshore services of these brokerages will remain intact, despite the crackdown on cross-border investment.