Saxo Bank and eToro knew what they were doing when they sold out to Chinese firms. We look at how the government has purged the foreign exchange dealings for its own greed and ends. Perhaps now is the time to consider how a Chinese foreign exchange company should be structured.
As in all totalitarian dictatorships, « do what I say, not like me » applies to China’s capital market sector as well as to every other aspect of the strictly controlled everyday life of 1.4 billion citizens of the People’s Republic, which is called oxymoronically.
Despite the obvious potential pitfalls, there is a risk that your broker’s working capital and client funds will be seized by the government as the banks and all internet infrastructure are owned by the state and foreign business is conducted, offices run by affiliated companies or brokers are introduced ambushed or were brought to a meeting in front of officials and asked to pack and leave within 24 hours.
None of these are palatable, and the Chinese government’s efforts to block overseas company websites targeting Chinese clients are closing offices for the introduction of broker networks that represent FX brokers who do not have offices in China or for Chinese property and stage media hysteria like getting into retail FX brokerage booths at major trade shows like Shanghai Money Fair, movies and TV on TV with propaganda showing western companies as villains and the Chinese government as the savior of the people.
Physical threats, employee coercion, and other such inconveniences have resulted in most retail FX brokers being almost entirely eliminated from a highly organized and lucrative market.
In fact, as early as 2015 FinanceFeeds visited a number of importing brokers in China, many of them located in peripheral, semi-rural areas, in whose offices such importing brokers often processed over 90,000 lots per month on behalf of their clients automated systems in the form of MetaTrader 4-based expert advisers developed by the introducing brokers themselves.
This provided a comprehensive insight into the scale of China’s broker networks and their value to overseas forex brokers.
Then came the purge, and now the once strong ties with Western firms through quietly loyal Chinese brokerage networks have gone the way of all things that the state overturned as the obedient Chinese people had to admit.
It was always more than a barely disguised attempt to appear as if the government were acting in the interests of its people. It never does, it simply serves as a gigantic force with tremendous purchasing power that can engulf entire economies in one hand, and whose control and power depends on the complete banishment of information or business from what it believes is possible one enemy: the insidious free world.
Thus, the purge of FX brokers has certainly been fueled by a selfish motive, as have all of the well-planned, extremely cleverly executed plans of the Chinese Communist Party, which literally has a department for absolutely everything.
This week, China made it easier for companies to manage cross-border renminbi investment and financing by simplifying the renminbi settlement process, an action publicly announced by the People’s Bank of China, which is effectively the Chinese Communist Party’s fiscal arm .
The regulations will also allow Chinese banks to open renminbi settlement accounts for Hong Kong and Macau residents with a daily limit of 80,000 yuan, which is around $ 13,000.
As China gets a tighter grip on Hong Kong, it fully understands in the inevitably forced move towards communist orientation that Hong Kong is the Southeast Asian Manhattan. It has been a fully open, fully international base for all finance for over 100 years, and has Tier 1 Western banks that transact for this region in the same way as the same American and British banks at Canary Wharf, London. Hong Kong and Macau are therefore ideal outposts, which are now completely under the communist control of the Chinese central government, in order to shape their system globally using the existing infrastructure.
In September last year, the government showed its hand on this.
To keep people limber, they allow government investment in startups, which really means the government is your boss. They allow people to drive luxury cars with the same brand names as western ones – although they are all made under license in China – and they allow rampant consumerism that makes it appear to the untrained eye that China’s people are living a capitalist lifestyle.
Nothing could be further from reality.
In order to continue to control a highly educated and smart, well-dressed population used to luxury today, the Communist Party must “sell” ideas that appear innovative and cool when trying to restrict freedoms.
The introduction of Steptember came in the form of a government-sponsored digital currency. It is the first of its kind in the world. No other nation has adopted a sovereign digital currency.
Wow, how avant-garde you might have said.
Perhaps even more incredible is that the People’s Bank of China, the company’s central bank, put it on the « market ».
People’s Bank of China intends to overtake other countries and be the first to issue its digital currency (CBDC), Reuters reported, referring to the central bank’s comment.
And there you have the mainstream media completely misunderstanding this and viewing it as an « overtaking other countries » when in reality it is yet another draconian effort to control people’s spending habits and investment opportunities.
According to the central bank, the right to issue digital assets is becoming a “new battlefield” between states. By winning the race, China can strengthen the yuan’s position on the world stage and break the dollar’s dominance.
Hence, it is likely that the floor was cleared of competitors when the successful and popular Western foreign exchange firms were removed from China in order to self-dominate this lucrative market and make money for the state rather than overseas foreign exchange brokers.
The only firms who got this right are those who understood that in order to keep doing business in a communist one-party country, partner with the government and sell a significant stake in state-owned large corporations with great state influence and distribution need channel.
Saxo Bank, for example, knew exactly what it was doing when it sold to Geely.
Geely is not just an automotive company but a path in all aspects to become a full-fledged Chinese company with government support and huge and diverse sales channel, all set up by the state.
Likewise, eToro’s wise Yoni Assia knew what he was doing when he only sold 10% of the company to PingAn.
Both are huge and successful in China and see this as the number one market.
In 2017 FinanceFeeds took part in a conference organized by Saxo Bank in Hong Kong, which was aimed exclusively at the Chinese market and attended by wealthy hedge fund managers from all over China.
The dialogue between the management of Saxo Bank made it clear that this is a company with very detailed technical knowledge.
Likewise, albeit through a different model, eToro has grown its fortune from doldrums to massive success by winning PingAn Bank’s entire client list as potential clients as their platform has been integrated into PingAn’s remit.
The only way now is to join forces and create a joint venture. As the West huddles under endless lockdowns and China continues its offensive move toward global FX dominance, now may be the time to become a Chinese company.
As she or she detest, the government of China is the dictator of all business in the immediate future.