老虎、富途、长桥被查——一个灰色地带的终结

China's CSRC issued an announcement.

The content of the announcement

was an "advance notice" of a penalty

against three companies.

These three companies

are names many people know well:

Tiger, Futu, Longbridge.

They are all online brokerages —

that is, companies that use phone apps

to help people buy and sell stocks.

The CSRC's conclusion was:

these three companies,

within China,

illegally operated securities business.

The regulator will confiscate

all of their illegal gains

and impose severe penalties.

As soon as the news broke,

Tiger and Futu —

these two US-listed companies —

saw their share prices plunge at once,

at one point falling

more than forty percent.

Today,

we won't only discuss the penalty itself.

What we'll discuss

is the whole story behind it:

how a "grey zone"

formed,

and how it ended.

Let's start with these companies.

Tiger, Futu, and Longbridge

are not traditional, old-line brokerages.

They are firms that, over the past dozen or so years,

grew up together with

the smartphone.

They got one thing right:

they made buying stocks

extremely simple.

In the past,

an ordinary person

who wanted to buy American stocks

had to go through complex procedures.

But with these apps,

you only need, on your phone,

to tap a few times

to buy

American and Hong Kong stocks.

For many of China's young people

and middle-class families,

this is very attractive.

They hope their wealth

is not all kept in one place.

They want to buy companies like Apple,

to invest in a broader market.

And so,

over these past years,

the number of mainland residents

opening overseas accounts to buy stocks this way

grew larger and larger.

Some statistics say

such accounts

may number in the millions.

This is a

real,

enormous demand.

But,

demand is one thing,

and rules are another.

Here,

we must understand an

important fact about China.

China's capital account

is not fully open.

What does that sentence mean?

It means

money entering and leaving China

is not fully free.

For an ordinary Chinese resident,

the foreign exchange convertible each year

has a fixed quota.

And according to the rules,

this quota

cannot be casually used

to purchase overseas stocks

and that kind of investment.

This is a

system that many countries do not have

but China has always maintained.

Its purpose

is to safeguard

the country's overall financial stability,

to prevent capital

from flowing out

on a large scale and unmanaged.

And so the problem arises.

On one side

is the public's real investment demand;

on the other side

is the state's management

of cross-border capital flows.

The gap between these two

is the so-called "grey zone."

These online brokerages

grew up precisely in this gap.

Most of them are registered in Hong Kong

or other places.

Legally speaking,

they are overseas companies.

But they use Chinese-language interfaces,

do promotion aimed at mainland users,

and handle trades for mainland clients.

This activity

can neither be called fully legal,

nor was it, for a long time,

completely banned.

It just stayed in the middle,

in that blurry zone.

Why could the grey zone

exist for so long?

One important reason is:

technology

often runs ahead of the rules.

Smartphones,

mobile payments,

cross-border online services

develop very fast.

But law and regulation

need time

to understand

and to respond.

When a new business appears,

regulation is often lagging behind.

This leaves the grey zone

its space.

But,

a grey zone

usually does not last forever.

In fact,

the state's attitude

has been tightening all along.

As early as a few years ago,

the CSRC had publicly stated

that this kind of cross-border operation

was a violation.

After that,

these apps

were gradually taken down from mainland app stores,

and basically stopped

opening to new mainland users.

However,

the measures of that stage

were more about "controlling new growth" —

that is,

not letting new users

come in.

But this time,

the force is clearly different.

Early this May,

with the State Council's approval,

the CSRC and eight departments

jointly issued a plan.

This plan proposes

to use about two years

to concentrate on rectifying,

and ultimately completely outlaw,

the illegal cross-border

operations of overseas institutions.

On May 22,

the penalty against Tiger, Futu and Longbridge

is this plan's

first major step in action.

"Confiscate all illegal gains" —

these few words

carry great weight.

The signal they send is:

this time,

it is not just

"don't let you expand further,"

but to fundamentally

end this matter.

So,

the most-asked question arises:

the millions of investors

who already have accounts —

what should they do?

On this point,

the regulator spoke quite clearly.

Please, everyone, do not panic.

Accounts that already exist

will not be forcibly closed.

The funds,

stocks,

fund assets and so on in the accounts

will not be forcibly liquidated.

During the two-year rectification period,

investors can still,

through their original institutions,

sell their own assets

and transfer the funds back into the mainland.

In other words,

the door

is not slammed shut with a bang.

It gives a period of time

for the people inside

to walk out in an orderly way.

This is a

relatively gentle way of handling it.

Speaking of this,

I want to step outside this news

and discuss something more general.

This matter,

in essence,

is a collision of three forces.

The first

is individual freedom —

my money,

wherever I want to invest it,

that is where I invest it.

The second

is the power of technology —

technology makes many things

that could not be done before

easy and effortless.

The third

is the state's management —

a country

has a financial order and security

it must hold the line on.

For a long stretch of time,

the first two forces

ran ahead of the third.

And this round of rectification

is the third force

catching back up.

You can, over this,

feel a little regret —

because for many ordinary investors,

a convenient tool

is slowly going to disappear.

You can also understand it —

because for a country,

the gate of capital

cannot be left with no one guarding it.

These two feelings

can in fact exist at the same time.

This is the way an adult

looks at the world:

many things

are not a simple right versus wrong,

but different values,

different considerations,

pulling against each other.

Finally,

I want to leave you two questions.

The first:

do you believe

a person's wealth

should have the right

to invest freely around the whole world?

The second:

when "convenience" and "rules"

come into conflict,

which one would you value more?

These two questions

have no standard answer.

But they

are worth thinking about slowly.

Okay.

That's all for today.

See you in the next story.