Is China’s Forex Crackdown for Real This Time?

China's Forex Crackdown

China’s forex crackdown has grabbed many headlines since it was announced by the State Administrator of Foreign Exchange last February.

In the past year, Chinese regulators have netted over 100 arrests. Many of these were related to “underground banks” that help facilitate the movement of funds outside of China and more than the Government’s capital outflows.

China’s forex crackdown has also targeted foreign exchange brokers that have operations in Mainland China. Regulators have focused their attention on activities located in the following provinces: Guangdong, Zhejiang, Shandong, Shanghai, and Beijing. We have also seen some familiar names like the recent closure of BMFN operations. Is this a new trend or is this a temporary reaction by the central government to rid some bad actors and clean house.

A little perspective this is not the first time the Chinese government has cracked down on Forex Brokers. Back in 2008, Gain Capital was suddenly asked to close their Shanghai Office and close up shop. At that time Chinese business accounted for a substantial percentage of Gain’s revenue. Many were calling the end of Forex in China, and that was not the case. It seems that Gain needed a little time in the penalty box and then was eventually allowed to continue with its success in the Chinese market.

Forex in China is one big grey area and the brokers that choose to operate their need to do so with caution and care. When the government is aggressive is a time for these brokers to pull back the advertising and exposure. These enforcement periods could last several months but will most likely subside.

Forex Brokers doing business in China need to take care in selecting the right partners. While China offers many opportunities, it also has many pitfalls as well.