Key Takeaways
- Chinese crypto investors are using Hong Kong stocks to gain indirect exposure to crypto, therefore circumventing mainland China’s crypto ban.
- The Guotai Junan International shareholding has nearly tripled after it got a Hong Kong crypto trading license.
- China Renaissance and TF Securities also surged after announcing crypto-related moves.
Investors from mainland China have flooded Hong Kong’s equity markets as a means of sidestepping China’s crypto ban, using stocks as a backdoor tactic to gain access to the digital space.
According to a CNBC report, the demand, which had been locked up during the 2021 trading prohibition, exploded last week after a Hong Kong-based brokerage backed by the mainland, Guotai Junan International, opened its doors following receipt of a license to operate a virtual asset trading business.
Sidestepping Crypto Ban Through Hong Kong Stocks
The licensing triggered a share-buying frenzy, with purchases nearly tripling last Wednesday, placing the firm at the top of the Hong Kong Stock Exchange by total trading value. The following day, the firm remained at number one and even overtook Alibaba. Last Friday, the share slipped to second place behind Xiaomi, which had just launched an electric car the night before.
Data published by Wind Information suggests a clear trend: buyers from the mainland are circumventing China’s crypto ban by investing in Hong Kong stocks linked to crypto activity, seeking to gain exposure to what they can’t legally hold at home. The doors opened for mainland China investors last May following the passage of the Hong Kong stablecoin bill, which allowed financial companies to issue and manage cryptocurrencies pegged to fiat currencies.
Hong Kong as a Sandbox
Considering the existing Chinese crypto ban, which considers crypto trading illegal, the move gave Hong Kong-listed firms with licenses a significant edge. Explaining the significance of the move, Robert Xing, Morgan Stanley’s Chief China Economist, stated on June 19 that the People’s Bank of China (PBOC) was now looking at Hong Kong as a sandbox to test alternative payment tools. Robin said:
“We believe China’s newfound interest in stablecoins is driven by concerns that legislation of US stablecoins could extend dollar dominance.”
Firms Take Advantage of New Situation
Despite China’s crypto ban, PBOC Governor Pan Gongsheng emphasized in mid-June the importance of stablecoins and highlighted weaknesses in traditional payment systems that digital technology can potentially address. Robin and his team took Pan’s remarks as a hint that change might be coming, though nothing official has been rolled out yet. Other firms have moved fast to take advantage of the situation.
China Renaissance announced last Thursday that it would invest $100 million over two years in crypto and Web3 development. That same day, it also brought on Frank Fu, the former CEO of Huobi Americas, as an independent non-executive director. The company, also known as CR Holdings, saw its stock jump 20% last week.
Conclusion
China’s crypto ban and the subsequent crackdown were intended to mitigate financial risk. With a population of 1.4 billion, the Chinese government may never have left room for unchecked speculation. However, people’s interest in crypto hasn’t slowed down despite the lack of formal approval, and they have now found a new path of indirect exposure through Hong Kong stocks. The expansion of stablecoins in cross-border trade is another trend being closely watched by Chinese investors, with JD.com and Standard Chartered officially participating in Hong Kong’s stablecoin project.
Frequently Asked Questions
What is the policy of crypto in China?
Crypto trading is banned in China, and digital tokens are not recognized as legal tender or assets within the country.
Who regulates cryptocurrency in China?
The regulation prohibits financial firms from holding or trading cryptocurrencies. On December 5, 2013, the People’s Bank of China (PBOC) made its first step in regulating Bitcoin by prohibiting financial institutions from handling Bitcoin transactions.
What is China’s attitude toward crypto?
Regarding financial regulation, considering the investment nature, which may be deemed a financial business subject to a specific financial license in China, cross-border crypto-related services are generally prohibited without a permit.
