News
No, Hong Kong cryptocurrency ETFs are not available in mainland China
-
HKEX Confirms Cryptocurrency ETFs Not Available to Mainland Chinese Investors, Despite Persistent Rumors to the Contrary
-
Hong Kong crypto ETFs, thanks to their unique in-kind redemption model, would offer a means to bypass mainland China’s capital controls
As the listing date of Hong Kong Exchange Traded Funds (ETFs) approaches, rumors have mounted that they will be available to mainland Chinese traders via Stock Connectwhich allows trading of Hong Kong shares on the mainland.
And then the ETFs launchedand they are not yet available. But the rumors won’t stop. The reality is that, while cryptocurrencies are still available to mainland Chinese traders in limited quantities, having an ETF available with in-kind redemptions would open the floodgates of liquidity, posing a threat to China’s capital controls.
I just returned from Hong Kong. There are rumors that the ETF could be added to Stock Connect. The implications for this are absolutely huge (basically it means mainland money can buy it)
— Richard Byworth ∞/21M (@RichardByworth) May 1, 2024
Adding some fuel to the fire was a piece in the SCMP That said, these ETFs would be available to mainland traders who have residency and brokerage accounts in Hong Kong. This is certainly true, but there’s a huge caveat: It’s like saying that mainlanders with US residency can open an American brokerage account and trade stocks listed in New York (which they can’t). This does not mean that they are available in mainland China, as trading by citizens residing in Hong Kong takes place in Hong Kong.
Regarding this part, the Hong Kong Stock Exchange (HKEX) confirmed that they are not available in mainland China when CoinDesk reached out for comment.
Check the yuan
So why is all of this such a big deal?
Allowing mainland China to trade these crypto ETFs would go against Beijing’s monetary policy of controlling the rise and fall of the Yuan (RMB), particularly as Hong Kong authorities allow in-kind creation and redemption through partnerships between ETF issuers and cryptocurrency exchanges licensed in the city, banned by the US SEC.
Capital controls in China are designed to regulate the inflow and outflow of money, preventing excessive currency fluctuations and capital flight, and maintaining the stability and value of the yuan.
This controlled rise and fall of the Yuan, enabled by capital controls, causes China to be labeled as a currency manipulator. However, it remains a central part of its economic policy as its exports can remain at competitive prices in global markets.
The story continues
Allowing a trader to purchase shares of a crypto ETF in Yuan via a local brokerage account, and then sell it in exchange for cryptocurrencies, would create a very effective means of circumventing capital controls. Stablecoins already provide a very effective gray market for this reason, above all for small and medium-sized enterprises in China who need dollar liquidity to support their international supply chain.
Remember that there is no absolute ban on cryptocurrencies in China, only one on exchanges and that uses local payment rails for crypto transactions. Binance AND OKX Openly advertise USDT-Yuan markets on their peer-to-peer platforms facilitated by WeChat Pay.
However, the liquidity offered in these markets is small and most reach a maximum of RMB 10-12,000 ($1,400-1,600), which is why it is tolerated.
The ability to do this through brokerage accounts would institutionalize capital flight, adding a significant number of zeros behind the amounts converted into cryptocurrencies to leave the country.