Now, more than ever, face to face relationships with key partners and IBs are crucial to sustainability as the Chinese government blocks several retail FX sites permanently.
For quite some time, FinanceFeeds has concurred that there is only one way of actually operating a business properly within the unique limitations of China’s completely controlled internet environment, and that is to be an actual Chinese entity.
Being a Chinese entity means having a license from the government to operate a commercial website inside China, the name for this being a “Beian” license that covers all .cn domains, and Chinese ownership, hosting and government involvement and oversight in all commercial activities including the ability for the government to view the distribution of data in and out of China.
FinanceFeeds has discovered via several sources with close connections to the government and internet infrastructure in China that several non-Chinese retail FX brokerages have had their websites blocked so that now they are completely inaccessible from within mainland China.
Among those affected by what has been cited as a permanent internet protocol (IP) block are firms with huge retail customer bases in the mainland, including FXCM, XM, Aetos, and FxPro.
Of course, these websites are completely accessible from any location outside the mainland’s notorious ‘Great Firewall’, which is the world’s most sophisticated internet system that employs over 2 million staff and is the absolute key to the Communist Party of China’s policy of controlling and monitoring every aspect of commercial and private life in China.
Censorship, website blocking and the inability to transfer files without scrutiny to any overseas destination, as well as a fully comprehensive China-only indexing system and search facility – Baidu – has assisted the Chinese government in ensuring that the ethos of the Communist Party’s will to stay out of global affairs and extend that down to every citizen whilst educating everyone highly to the extent that the vast majority of the population are technologically so astute that over 900 million Chinese citizens use mobile applications for every aspect of their lives.
Thus, keeping ‘foreign influence’ out of China and maintaining the government’s key attribute of ‘social stability’ is very easy, as it is done by simply blocking websites, deleting content and de-indexing items from search engines, hence large companies simply disappear to a Chinese audience.
On October 13 this year, China’s Ministry of Industry and Information worked alongside the financial risk assessment agency, the result being that the National Internet Finance Security Technology Expert Committee issued a report on what it termed “Internet foreign exchange finance” platforms, mentioning several more prominent risks.
This means that there will be a greater dependence on introducing brokers (IBs), which are commonly accepted as the only means by which western firms interact with a Chinese audience, because very few Chinese investors even trade their own accounts, let alone go directly to the Chinese language site of a foreign broker and invest directly.
The blocking of these sites has come at a critical time for the retail sector, as FXCM Inc, which is now operating as Global Brokerage Inc in the United States, that entity having been established after the decimation of FXCM’s operations by America’s top regulator the NFA’s revelation that the firm’s senior management had been reporting publicly that the company was processing trades directly to a liquidity provider when, according to the NFA, the firm had an undisclosed interest in a market maker called EFFEX Capital and was taking rebates from trades processed by the market maker against the customer’s positions.
FXCM US’s demise spawned subsidiary Global Brokerage Inc, which is now expected to begin the bankruptcy procedure on December 20 this year under Chapter 11 in the United States, its duration yet unknown.
XM has been the subject of controversial office raids by police, a matter which made Chinese news, and then was quickly removed back in April this year, and the government’s extension to many other large firms with aspirations of gaining larger market shares in China has reinforced the need to have actual Chinese operations.
FinanceFeeds CEO Andrew Saks-McLeod addressed 300 Chinese FX industry executives in Guangzhou earlier this year, stating “For brokerages, technology providers and integration firms that make up the entire infrastructural architecture of the retail trading environment, only those with actual presence in mainland China, with physical offices, hosting, and a Chinese website based in China which is connected to Chinese payment facilities and has partial Chinese ownership or a joint venture agreement in place will be able to conduct their business with Chinese retail customers and IBs in future.”
“We are speaking today about the new ways that media in China will have to be used in order to attract and maintain a sustainable client base as well as organically grow any business, and from my research, the only method now is to concentrate on media campaigns that are based in China, originate from Chinese entities – meaning Chinese hosted and partially owned subsidiaries of Western brokerages or technology firms, and not to make any media campaigns that focus on China, from outside China” – Andrew Saks-McLeod, CEO, FinanceFeeds
Last month, China’s government blocked the 443 port in certain places, meaning that some brokerages could not connect their MT4 client terminals to their servers. This is because the 443 port is largely impenetrable by any surveillance and secures data between the source and receiver, something that the Chinese government disapproves of as it cannot monitor the entirety of data flow if firms are using a secure port, hence it was blocked.
China may well indeed be a land of opportunity, however its internet is domestic, its payment solutions systems and banking infrastructure is domestic, and the entire environment in which the country which powers the entire world’s industrial, commercial, intellectual and financial world is impenetrable to the outside world, and vice versa.
This has made China, in the eyes of western brokerages, relatively akin to an oasis in a huge desert which, after massive effort has been made without resources to approach it, turns out to be a mirage.
As a result, many brokerages which have managed to forge some relationship with Chinese IBs or via media campaigns that have been small enough to not be of consequence to the all-seeing eye that is the Chinese firewall, have rested on their laurels and let this continue.
This will no longer suffice.
In conclusion, China still remains the absolute land of opportunity, and is the region in which the future of the retail FX industry lies. For those wishing to onboard retail customer volume from the mainland, the correct relationships need to be in place with IBs the length and breadth of the land, and China-based media and solutions need to be in place, all of which must be conducted on a face to face basis by actually going there and meeting the right people.
FinanceFeeds is able to help with this in a very comprehensive way and is the only international FX industry resource with a Chinese company and full facilities in mainland China. For further information please email firstname.lastname@example.org – we are committed to working with you to ensure your business thrives via the correct and sustainable channels.