China Financial Martial Law Begins, Citizens Banned from US Stocks, Middle Class Money Can’t Escape

重磅好消息呀,咱們又限制炒美股了 Tiger Brokers, Futu Securities and Changjiang Securities are operating illegally. They face asset confiscation and fines, with the amounts involved being significant. Tiger and Futu alone are facing combined penalties of 2.3 billion yuan. What is behind this crackdown? And what issues could it create? On May 22, the CSRC said that Tiger Brokers, New Zealand, Futu Securities International and Changjiang Securities, Hong Kong, conducted securities promotion and trading in China without approval or the required licenses. The Commission said these actions violated Chinese securities, funds and futures laws and regulations, disrupting market order. The CSRC plans to confiscate all illegal gains from these firms, both in China and overseas, and impose strict penalties. Tiger, Futu and Changjiang are cross-border Internet brokers serving mainland Chinese investors. They operate under Hong Kong or overseas licenses and use websites, apps, social media and mainland partnerships to provide account opening, trading and fund transfer services for Hong Kong and US stocks. In recent years, they have attracted many middle-class investors and young retail traders from mainland China. Following the CSRC announcement, Tiger and Futu shares fell sharply in pre-market trading. Tiger's US-listed stock dropped 45% pre-market, while Futu Holdings fell more than 30%. US economist David Huang told the Epoch Times that Beijing's crackdown on illegal cross-border financial services is officially framed as enforcing securities law and protecting investors. In reality, it targets brokers that help Chinese residents move funds to overseas stock markets, closing channels for unmonitored capital outflows. On the same day, May 22, the Hong Kong Securities and Futures Commission, or SFC, issued a circular requiring licensed brokers to strengthen measures against forged documents and money laundering, raise account opening standards and apply three additional measures specifically for mainland investors' accounts. The SFC said it recently reviewed account opening procedures at 12 licensed brokers and identified major deficiencies, including inadequate due diligence on account documents and insufficient oversight of cross-border intermediary relationships with overseas agents. Huang noted that while the SFC frames its actions as compliance and anti-money laundering measures under international standards, they also align with mainland regulatory requirements. Media analyst Shi Shan on the program Good Morning China said the SFC's move supports Beijing's actions. This shows that Hong Kong's remaining status as an international financial center is continuing to erode. Public records show that these three overseas Chinese brokers are backed by emerging Chinese industry giants. Futu Securities is closely linked to Tencent. Its largest shareholder is founder Li Hua, Tencent's 18th employee, while Tencent itself is Futu's second-largest shareholder. Tiger Brokers is backed by Xiaomi and other brokers with Chinese heritage. Its largest shareholder is founder Wu Tianhua, with Xiaomi as the second-largest shareholder. Other investors include Tang Binson, China Growth Capital, and Zhen Fund. 長江 Securities is a relatively new, social-focused broker, with founders and management from Alibaba. Its major strategic shareholder is Yunjin Capital, a venture firm founded by former Alibaba executive Wu Yongming. In fact, the CSRC already began cracking down on cross-border operations of Futu and Tiger on 30 December 2022. By May 2023, under regulatory pressure, both firms removed their mainland China apps. Before this latest penalty, Futu, Tiger, Changjiang and interactive brokers had already raised online account opening requirements for mainland Chinese residents. After the CSRC issued its penalty notice, Tiger Brokers and Futu Holdings disclosed the proposed fines. Futu faces 1.9 billion yuan and Tiger 411.2 million yuan, totaling nearly 2.3 billion yuan. According to recent financial reports, excluding client funds, Tiger has 790 million U.S. dollars in reserves, while Futu holds 1.3 billion U.S. dollars. The CSRC did not specify the exact amounts to be confiscated as illegal gains from the three brokers. US-based commentator Tang Jingyuan noted on his media program that external estimates place the total at 28 to 37 billion yuan. He added that the action involves more than just the CSRC. Eight government departments, including the Ministry of Public Security, the Central Bank, the State Administration of Foreign Exchange and the Cyberspace Administration, jointly implemented the measures. He said, This is no ordinary regulatory action. It is a coordinated state-level operation. Tang said the sudden heavy penalties on cross-border brokers appear regulatory on the surface but are essentially a systemic financial grab. The primary aim is to block channels for Chinese citizens to invest overseas and prevent continued capital outflows. Regarding the sudden crackdown, Tang identified two warning signals. First, private property receives no real protection under the Chinese system. Second, it shows that China's economic crisis may have worsened significantly. He described the action as raid-style regulation. Tang noted that the purge had early signs. On April 22, Beijing held a mobilization and deployment meeting on preventing and combating illegal financial activities, formally launching a three-year crackdown from 2026 to 2028. He said that what counts as illegal financial activity is entirely defined by authorities. He cited the P2P industry as a past example. During the growth phase, it's called innovation. When authorities shut it down, it becomes illegal. A senior figure in China's finance sector, Xu Zhen, said that based on current disclosures, the action appears to be a premeditated targeting of financial newcomers and the middle class. By the end of 2022, these brokers were small and only drawn red lines. By 2026, they had grown significantly, and the CSRC's move to confiscate gains and impose fines represents a notable revenue source. Xu noted that the authorities have at least three calculations. First, Futu is backed by Tencent, Tiger by Xiaomi, and Changjiang by Alibaba. They have substantial resources. Second, China's middle class is the main investor base for these brokers, enjoying high returns from U.S. stocks, which are subject to 20 percent excess profit or capital gains tax. Third, under the guise of preventing capital outflows, authorities are pushing overseas investment back into the A-share market, where state-backed investors may profit. Xu said these three sources of funds can ease some fiscal pressure. This has been the calculation of the authorities in recent years. Xu added that the timing of the crackdown reflects the maturity of regulatory technology at the CSRC, the State Taxation Administration, and the Ministry of Public Security. In recent years, China's regulatory system has strengthened, with cross-cutting supervision, big data account identification, fund tracking, CRS tax information exchange, and anti-money laundering coordination. This makes it easier to track investors across the full investment chain and enables more coordinated enforcement. Independent commentator Jiang Feng said on his media program that capital is highly sensitive. In recent years, Chinese funds have shifted from Chinese-backed brokers to overseas platforms. Authorities had long tolerated cross-border stock trading, but the sudden nationwide crackdown shows it's time to act. He explained, in the past, using an annual US$50,000 foreign exchange quota to trade US stocks was nominally for tourism, study or medical purposes, but the authorities always knew the true flow of funds. He warned that many investors may face penalties for illegal foreign exchange in the future. Jiang said the current policies ultimately aim to concentrate resources and maintain control. He added, to preserve its rule, the Chinese government will further strengthen social control. He also warned that China may militarize national resources under the pretext of unifying Taiwan. They would mobilize wartime mechanisms to concentrate the country's remaining resources, Jiang said. The goal is not to improve livelihoods, but to maintain the existing power structure. Independent commentator Qin Peng on the program Good Morning China noted that in 2025, China's net capital outflow reached about US$760 billion, with estimates suggesting the true scale could exceed US$1 trillion. He said, the problem is not earning dollars, but keeping them. He added that authorities are concerned not only about US stocks, but also about the middle-class moving assets abroad. Shixian said, this is a lock the door and hit the dog approach. First, stop money from leaving, then force investors back into the A-share market. He added, the central fiscal deficit is at a record high, and local governments rely heavily on central funding. With money flowing out, the authorities are naturally concerned. The CSRC, the Ministry of Industry and Information Technology, the Ministry of Public Security and five other departments issued a joint plan. They aim to spend two years completely banning illegal cross-border operations of overseas securities, futures and fund institutions. According to the plan, during the crackdown, overseas institutions are prohibited from providing domestic investor services such as buying stocks or transferring funds. Only one-way sell orders and fund transfers are allowed. After the crackdown period, overseas institutions must shut down domestic websites, trading apps and supporting servers and are forbidden from providing any domestic trading services. One observer summarized, the government is short of funds and citizens' money must remain in the domestic circulation. Tang Jingyuan said authorities now only allow cross-border platform users to sell, not buy. This mirrors past interventions during A-share crises. He said, during the A-share crash, investors could buy but not sell. Now, when authorities need you to liquidate overseas assets, you can only sell. He added that the key signal is a full crackdown on Chinese residents' overseas investments. This is no longer just cutting profits. It is uprooting the entire investment base, he said. He also noted that current penalties are just a taste before the main course. The real investigations have only just begun, and harsher measures will follow. Qin Peng said the main concern now is whether investors will face further retroactive penalties. So far, only the brokers have been fined. Will authorities go after the investors next? Many people are worried. On Chinese social media, users continued posting sarcastic comments about the CSRC while supporting U.S. stocks, suggesting the crackdown is a money grab. One comment read, You've smashed all the restaurants, but people still won't go to the bathroom. Overseas discussions on X focused on broader implications. Comments included, Have China and the U.S. not negotiated on finance? Without border control, it's all paper tigers. Big noise, little action. We have long known this day would come. Xi continues his reckless path. Blogger Chao Jifei posted, Are the three cross-border securities platforms that were shut down actually noncompliant? If they were noncompliant, why did they operate for so long? If they were compliant, why are they now being eliminated entirely? The post wrote, Around 2016, when these platforms first emerged, regulators issued risk warnings, but didn't step in to stop them. Why is this? 2021. The CSRC summoned executives, and the central bank publicly criticized unlicensed operations, which shows violations were already happening. So why didn't the CSRC, acting as the traffic cop, intervene? End of 2022. They were officially classified as illegally operating. Authorities adopted a strategy to effectively curb new growth while orderly resolving existing accounts. New accounts were banned, but existing users could still trade. May 2026. They were cut off. After a two-year transition, domestic services were completely shut down, all illegal gains confiscated, and heavy fines imposed. What kind of grey area survival logic lies behind all this? Commentator Li Changpeng questioned on X why using one's own money to buy foreign stocks is illegal in China. He said, In the U.S., anyone can open accounts to buy Japanese, German, or Hong Kong stocks without restriction. In Germany, buying French stocks is as simple as buying German stocks, thanks to EU capital mobility. In the U.K., trading U.S. stocks is like shopping online. In France, retail investors can invest globally by simply reporting taxes. In Japan, opening a Rakuten securities account on your phone lets you buy Apple or Tesla stocks as easily as Toyota. In Taiwan, buying U.S. stocks is the same as buying TSMC. In Hong Kong, funds move freely. It is the foundation of its international financial center status. In mainland China, each person has a US$50,000 annual foreign exchange quota. Circumventing government control to trade abroad is illegal. He added, Some say Japan requires foreign brokers to hold a local license to solicit clients, similar to China's crackdown on Futu and Tiger. It is not the same. Japan's rule protects consumers, ensuring disputes can be addressed by regulators. China's capital controls exist to prevent funds from leaving. One protects investors. The other restricts them. Li concluded that Futu and Tiger were penalized because they created a loophole in the system. In China, everything must remain state-controlled wombs— education, money and thought. In response to the CSRC actions, some experts suggested alternatives for Chinese investors who want to trade U.S. stocks. Financial vlogger Wang Changfu said the closure of Tiger and Futu is not a major problem. There are still multiple channels to trade U.S. stocks, including ZA Bank cards tokenized U.S. stocks, southbound trading, QDII, cross-border wealth management programs, HSBC Fast Track, Charles Schwab and IBKR. Blogger Zio Suiwo wrote, Because of the CSRC's crackdown on Tiger, Futu and Changjiang, interactive brokers now requires overseas identity verification and even geolocation. As a result, many users are rushing to open accounts at Charles Schwab. Currently, Schwab does not require proof of address or an overseas permanent residency card. I heard that because so many people have registered over the past couple of days, Schwab servers have been overloaded, but when I personally logged in, the speed was still fine. I don't know if the issues others are experiencing are because of Chinese IP addresses. For those currently in China without overseas permanent residency, Schwab may be the only option. The Wise Online Operations team focused on U.S. stocks wrote in their analysis, Here's a bold prediction. The CSRC crackdown has a very high chance of fizzling. Looking at everything together, I think this is basically all bark and little bite. It's mainly meant to fool new investors, so everyone should think twice before acting. The team advised, if you currently hold accounts with Cheng Jiang, Tiger or Futu, what you can do is simply continue using them normally. Try not to open new accounts, and for your existing holdings, as long as it doesn't affect your daily life, don't sell them lightly. What you can do is keep your funds on hand, avoid adding money to these three brokers, and preserve your current balance. Then, if you really need to sell these funds, try to transfer them back to mainland Chinese accounts through other channels, and avoid using Hong Kong cards.