Crackdown Hits Hong Kong Financials on Anniversary of Tiananmen Square

Hong Kong financial stocks sank on Thursday, the anniversary of the Tiananmen Square massacre, as the Chinese Communist Party (CCP) seeks further ways to cut off the flow of capital heading out of mainland China.

Insurer AIA Group (AAGIY) (HK:1299) was one of the worst performers in the Hang Seng index, with 6.7% shaved off its stock price on Thursday.

Selloff Sharpest in London

Rival insurer Prudential (PUK) (HK:2378) ended Thursday down 3.6% in Hong Kong, but finished Thursday down 7.8% in London.

HSBC Holdings (HSBC) (HK:0005), Hong Kong’s largest bank by market share, saw its shares dip 0.3% in Hong Kong trade. But the shares opened sharply lower in London, and were at one point down 7.0%, only to recover to close on a 2.3% loss.

The story was similar for Standard Chartered (SCBFY) (HK:2888), another Britain-based bank that is similarly Asia-focused with large operations in Hong Kong, Singapore, China and India. It saw its shares fall 2.4% in Hong Kong, then plunge 7.3% in London before recovering to end on a 2.8% loss.

Bank Stops Signing New Mainland Clients

The selloff stems from a report that the Hong Kong-based Bank of East Asia (BKEAY) (HK:0023) has suspended opening new accounts for mainland Chinese clients. Ironically, the shares of that bank ended flat in Hong Kong, on a downward day for almost all Asian markets.

The bank’s Shanghai office has stopped opening accounts that could be used for overseas investments, according to the South China Morning Post.

Hong Kong Exchanges and Clearing (HKXCY) (HK:0388), the for-profit company that operates the Hong Kong stock market, gave back 2.1%.

The fear is that other financial companies with larger mainland and cross-border operations may be forced to follow suit. HSBC has already warned that all funds deposited into investment accounts must comply with Hong Kong’s regulatory rules.

Big Cross-Border Business

Insurers like AIA and Prudential get around 15% of their business from mainland China. It’s popular for mainland customers to travel to Hong Kong and open insurance accounts in the city, where any underlying investments can access international markets.

Hong Kong has a separate legal system from mainland China, one that makes it easy to buy and sell securities and exchange currencies for all investors. It may, however, not be enough to comply with Hong Kong rules, given efforts by the mainland China’s Communist government to expand its regulatory reach over securities operations abroad.

Crackdown on Cross-Border Brokerages

The Beijing government has already sent the shares of U.S.-listed Chinese brokerages tumbling as it promises to impose large fines and crack down on “illegal” cross-border securities transactions, as I noted in a column last week.

The U.S.-listed shares of Futu Holdings (FUTU), the operator of the brokerage Futu Securities, are down 43.2% since May 6. The Tiger Brokers parent UP Fintech Holding (TIGR) have fallen 32.5% in the same timeframe. Both brokerage stocks are down around 50% year to date.

The Chinese stock regulator says the brokerages have been allowing mainland Chinese customers to access international stock markets. Their domestic affiliates have drummed up business inside China while the overseas entities operate apps or websites that give the mainland investors access to overseas shares. Both companies face stiff fines but, more significantly, must effectively shutter access to their trading apps from within China.

The CCP, in contrast to laissez-faire and hyper-capitalist Hong Kong, keeps an extremely tight leash on the Chinese yuan currency, and prevents only small amounts of money to flow out of China legally.

China’s securities regulators are also attempting to extend their reach outside China to capture China-centric companies that are technically based overseas. That resulted in the forced scrapping of the Meta Platforms (META) deal to buy the China-founded, Singapore-based artificial intelligence startup Manus for $2 billion, events I outlined in an earlier column. China also requires China-focused companies to get approval to list on U.S. markets, even if a company in question is incorporated outside China’s borders.

Capital Flows Far Larger Than Official Limits

Mainland Chinese citizens have an official limit of $50,000 per person that they are allowed to transfer abroad, intended to pay overseas tuition or medical expenses. But Hong Kong banks, brokerages and insurers, as well as Macau casinos and other mainland-focused cross-border businesses, may take Chinese yuan from customers inside China, then issue them foreign currency abroad —for a cut and a fee, of course. There are also plenty of tales of wealthy Chinese customer carrying cases of cash across the Hong Kong border to deposit in the city, where the money has previously been out of the reaches of the CCP.

Hong Kong banks are, in response to the crackdown by mainland regulators, reportedly ramping up scrutiny of new accounts opened by mainland Chinese customers. And Hong Kong’s central bank equivalent, the Hong Kong Monetary Authority, is instructing banks to require a declaration from prospective clients that the source of deposit funds comes from outside mainland China.

The Hong Kong Securities and Futures Commission, equivalent to the U.S. Securities and Exchange Commission, has ordered brokerages in the city to improve client onboarding, after a review indicated that and weak cross-border compliance checks and the use of forged documents were common. The central bank, meanwhile, states that accounts opened using “questionable or forged documents” must be closed.

Capital outflows out of China have always been large but escalated recently, doubling in the last five years to an estimated $1 trillion in 2025.

‘Opening Up’ Only Goes So Far

China’s $20.8 trillion economy has modernized and become more market-oriented since paramount leader Deng Xiaoping embarked on his famous “southern tour” in 1992 through the cities and Special Economic Zones across the border from Hong Kong.

That tour came just three years after the Tiananmen Square crackdown on June 4, 1989, where Chinese troops invaded a peaceful pro-democracy student demonstration in Beijing, leading to a conservative backlash within the CCP. Declassified U.S. and U.K. diplomatic documents suggest the death count in Tiananmen Square may have been as high as 10,000. A candlelight vigil held annually in Hong Kong has been prevented by the authorities ever since the imposition by Beijing of the dreaded National Security Law into Hong Kong law in June 2020.

Deng, a reformer, emphasized the importance of “reform and opening up” as well as market reforms, and indicated that securities and stock markets had a role to play within the Chinese Communist system. He had already championed the evolution of “socialism with Chinese characteristics,” allowing for market reforms and for-profit businesses to flourish within the Chinese Communist system.

Still, it has long been the case that the largest Chinese companies chose to list on Wall Street, where they could access a global pool of institutional investors. The likes of e-commerce platforms Alibaba Group Holding (BABA) (HK:9988) and JD.com (JD) (HK:9618), Temu operator PDD Holdings (PDD), videogame developer NetEase (NTES) (HK:9999) and the online travel agency Trip.com (TCOM) (HK:9961) all chose a primary U.S. listing, even if all but PDD have subsequently secured a dual primary or secondary listing in Hong Kong.

While JD.com shares are virtually flat year to date, the other major U.S.-listed Chinese stocks have had a punishing 2026. Trip.com has lost 35.2%, Alibaba is down 18.9% and NetEase has declined 16.6%.

The actions by Chinese regulators would rob those stocks of their chief champions, Chinese citizens who want to invest their money outside China. They are also in the crosshairs of Sino-U.S. tensions, with U.S. lawmakers keen to restrict the access of Chinese companies to U.S. capital markets.