China Tightens Its Grip on Billions in Offshore Wealth

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, podcasts, radio, news.

**K. Oanh Ha** (0:08)
Recently, my colleague Lulu Chen, who covers Asia Finance here in Hong Kong, told me a story about a Chinese investor, Tom.

**Lulu Chen** (0:17)
Tom's a Beijing-based tech executive. He's been trading US stocks for years. Technically, Chinese citizens aren't allowed to buy and sell shares in foreign markets, aside from a few permitted channels.

**K. Oanh Ha** (0:31)
But for years, people like Tom have used Chinese trading apps and online brokers to invest in markets outside of China, from blue-chip stocks like Apple and Coca-Cola to the S&P 500 exchange traded funds.

**Lulu Chen** (0:45)
He was doing it through a few Chinese brokerages that are very popular. One is called Futu, one is called Tiger. These are your equivalent of Robinhood, and because the US stock markets were doing so well, a lot of the trading was done focusing on US stocks.

**K. Oanh Ha** (1:05)
These apps are not authorized to allow Chinese investors to trade in foreign stocks. But in the more than 10 years that these platforms have been operating, Beijing has largely looked the other way.

**Lulu Chen** (1:18)
For a while, it seems like all these trades were within the spirit, if not the letter of the law. And then one day, Tom gets hit with a $15,000 tax bill for his gains trading these stocks.

**K. Oanh Ha** (1:33)
It was the first time the Chinese government had even appeared to be aware of Tom's illegal overseas gains.

**Lulu Chen** (1:41)
Tom thought that, oh, since you're taxing me, maybe this is a form of blessing.

**K. Oanh Ha** (1:47)
But last month, not long after Tom received that tax bill, investors like him got another warning sign.

**SPEAKER_4** (1:55)
Chinese authorities launching a crackdown on illegal cross-border trading while scrutinizing.

**SPEAKER_5** (2:00)
Our Chinese regulators plan to find three brokerages for illegal cross-border businesses, including Tiger and Futu.

**Lulu Chen** (2:09)
What the government has said is that none of these apps are allowed to allow mainland people to trade offshore stocks anymore. They've given them a two-year time period to unwind all the assets.

**K. Oanh Ha** (2:25)
Lulu says this ban goes beyond a crackdown on a few brokerages and investors. It's a bigger push by Beijing to tighten control over money leaving the country, especially the overseas flows from wealthy Chinese investors.
While it's impossible to track just how much money flows out of the country, one estimate says that last year alone roughly $807 billion left China. That's about 4% of the country's annual gross domestic product. It's the highest single year outflow on record.

**Lulu Chen** (2:58)
They want to map Chinese offshore wealth and show that moving assets offshore doesn't put these rich people beyond the reaches of authority and ultimately, it's controlling the money flow and making sure that the money is taxed.

**K. Oanh Ha** (3:22)
This is the Big Take Asia from Bloomberg News. I'm Oanh Ha. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever-shifting region. Today on the show, China's crackdown on offshore trading, what Beijing is doing to stop capital from leaving the country and why it now needs that money more than ever.
In late May, the China Securities Regulatory Commission, along with seven other government agencies, announced a sweeping crackdown on what it called illegal cross-border trading. Authorities said they'll penalize brokerages, Futu, Tiger Brokers and Longbridge Securities for operating on the mainland without a license. And they said they'll confiscate what's described as illegal gains, both in China and overseas. This affects hundreds of thousands of Chinese investors who used the popular apps.
Now Lulu, China is clamping down obviously on Chinese people who are investing money overseas. Why is this happening?

**Lulu Chen** (4:40)
Well, you first have to understand that investing in China isn't like in the US or Europe. Money cannot flow freely out of the country. There is a capital control mechanism in China. They have a cap in terms of how much people can convert in terms of foreign exchange every year.
The quota is $50,000 US dollars per person.

**K. Oanh Ha** (5:04)
Now, if you're a Chinese national, why would you want to invest your money outside China?

**Lulu Chen** (5:10)
US stocks have been going bunkers this past year. It's a lucrative trade and the returns are pretty handsome compared with Chinese domestic stock market.
I think it also follows a broader shift in sentiment among Chinese households. We remember after the COVID lockdowns and then China had also the tech sector clampdowns, Xi Jinping's push for common prosperity, all of these things intertwined and it really unsettled both the wealthy and middle class segments of the population. You compound that with property prices falling, youth unemployment, a lot of affluent families see holding offshore assets more than just diversification. It's also about having a form of insurance and protecting their wealth.