The company’s bitcoin mining business held steady in the second quarter, as its first high-performance computing center was ready to receive customers in July

Key Takeaways:

• Cango completed its overhaul of a high-performance computing center in Georgia in July, as it signed the first customer for its new AI services
• The company continues to refine its core bitcoin mining business by phasing out older machines and experimenting with leased capacity

By Doug Young

First there was the storm. Then there was the post-storm clean-up. Now the rebuilding begins.

That sums up the recent turbulent history for Cango Inc. (CANG.US), which, in the space of just nine months has gone from the brink of a liquidity crisis to a herculean effort to right its corporate ship. Its latest financial results show the company’s finances returned to stable footing in the second quarter, as it forged ahead with a new AI-related business model.

The company’s latest report, released Aug. 31, contained some important new developments on the AI front, including the signing of the first customer for the high-performance computing (HPC) centers Cango is setting up within one of its existing bitcoin mining facilities. The company also competed an overhaul of a portion of an existing mining center in the U.S. state of Georgia, converting roughly 3 MW of the site's 50 MW of capacity, positioning it to become its first such operational HPC facility.  

It should come as no surprise that Cango’s recent turbulence is directly tied to its embrace of bitcoin mining as a business model in late 2024. The company was a car trader in China before that, but ditched that sputtering business in favor of bitcoin mining as the cryptocurrency traded at record highs. But then bitcoin prices crashed starting late last year.

The company responded by selling off a big portion of its bitcoin reserves starting in January. It used that cash to pay down its long-term debt, which dropped to $30.6 million by the end of March from $557.6 million just three months earlier. Its latest report showed that long-term debt level remained low, at $31.2 million at the end of June.

Going forward, CEO Paul Yu said Cango will continue to run its bitcoin and AI operations as “parallel businesses.” But the focus seems to be shifting to HPC centers as bitcoin prices remain stubbornly low, despite a recent rally of more than 20% for the cryptocurrency since the start of July. 

Cango said the average cost for each bitcoin it mined stood at $73,313 in the second quarter, down 5% sequentially, as the company shifted its mining strategy, which we’ll discuss in more detail shortly. Significantly, that cost is below the latest bitcoin market price of about $77,500, meaning Cango is spending less to mine each coin than the currency’s actual value. But we should also point out the company’s all-in mining cost of $98,405 per bitcoin during the quarter was still well above the market price.

“In our bitcoin mining business, we continue to focus on unit economics rather than scale,” said Yu. “At the same time, we continued to deliver on our AI modular build at our LN mining site,” he added, referring to the company’s first HPC center in Georgia.

First customer onboard

The Georgia facility is one of dozens of sites on three continents that Cango currently operates, mostly as bitcoin mining facilities. It’s using the Georgia facility as a proof of concept, aiming to show it can host the heavy-duty computing power needed to run AI applications. The network of centers Cango envisions today are well suited for an emerging field of more company- and industry-specific agentic applications that require less power, but it doesn’t not rule out expanding into larger-scale AI inference workloads as its infrastructure and GPU fleet evolves over time.

The HPC centers are being operated under Cango’s new EcoHash unit, which it set up last year in the U.S. state of Texas. Cango said the Georgia site’s conversion was completed in early July, and now has infrastructure that can support up to 3 MW of computing power, with room for future expansion. Necessary hardware has been procured and is being installed in batches to support a phased ramp-up of the site.

And perhaps most significantly, Cango said the site has signed its first customer, while the company continues discussions with several others. As a result, it expects to start generating its first revenue from the AI business in the third quarter. Outside Georgia, Cango added it has already begun operating other AI test nodes in Texas and on the U.S. West Coast to serve customers with proximity-based deployment needs in those regions. It said it also continues to evaluate other potential new sites, as well as the possibility of building its own new HPC facilities.

New business from the AI operation would be a welcome addition for Cango, whose revenue from its core bitcoin mining operation has been rapidly shrinking as it focuses on more efficient mining. The company generated $50.8 million in revenue during the second quarter, most of that from the bitcoin operation, which was down roughly by half from $102 million in the first quarter. The company attributed the drop to phasing out some of its older, less efficient mining machines, and shifting a portion of its capacity from self-mining to a hosted leasing model.

As it shifted its focus to greater efficiency, Cango mined 656 bitcoins during the quarter, averaging about 219 per month, down from its monthly average of 422 bitcoins in the first quarter. It operated 27.58 EH/s of mining capacity as of June 30, also down from 37 EH/s as of March 31. The company held 1,056 bitcoins in its treasury at the end of June, similar to the 1,026 it had at the end of March, but down dramatically from nearly 7,500 in January this year before it started selling its holdings.

The company also disclosed that it has started to execute a hedging strategy as a buffer against bitcoin price volatility, though CFO Simon Tang stressed the move was purely for risk management and not for speculative purposes.

The focus on greater efficiency led to dramatic improvements in the company’s profitability metrics. Its loss from operations narrowed sharply to $80.6 million in the second quarter from $254.4 million in the first, while its adjusted EBITDA loss fell to $10.7 million from $154.1 million over that period. And on the bottom line, Cango’s net loss of $81.6 million from continuing operations also marked a big improvement from a $261.1 million loss on that basis in the first quarter.

“Looking into the second half, our priorities are: managing the mix of self-mining and leased hashrate prudently; executing our first AI deployments and continuing to sign new customers; and building on the operating experience from Georgia as we evaluate further site expansion,” said CEO Yu. “Capital discipline and operating efficiency remain our priorities.”

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The cryptocurrency mining machine maker’s revenue plunged and its net loss ballooned in the second quarter as its product sales and mining income both tumbled

Key Takeaways:

• Canaan’s revenue from product sales dropped more than 80% in the second quarter, while its mining income dropped 37%
• The company continued to accumulate cryptocurrency, but at lower values, as it used its machines for its own mining business to clear out unsold inventory

By Warren Yang

Wild swings in cryptocurrency values mean companies in the space often find their business either booming or busting. The market’s latest hair-raising crash dating back to last fall has left mining equipment maker Canaan Inc. (CAN.US) stuck in a rut, helplessly waiting for the next upswing.

When cryptocurrency prices began dropping nearly a year ago, many players scrambled for the emergency exits. Canaan, however, is charting the exact opposite course.

The company diversified beyond its original mining machine business by starting its own mining operation in 2021, and had amassed 1,915.5 bitcoins by the end of June, up about 29% from a year earlier, according to its second-quarter results released last week. It also held 3,951.7 ethers, though that was roughly the same as a year earlier. Yet its revenue from minting those digital assets, recognized at market values at the time they were awarded, dropped 37% year-on-year to $17.7 million as cryptocurrency values slumped.

Warehousing virtual tokens at times like these creates a conundrum for Canaan. During a crypto downturn, its inventory of unsold Avalon mining machines swells. At the same time, the value of its bitcoin and ether holdings falls, triggering unrealized losses that erode its bottom line. And of course, its mining revenue takes a hit since the same bitcoins and ether it mines now are worth a fraction of what they would have fetched a year ago.

Canaan’s revenue from product sales plunged more than 80% year-on-year to $13.6 million in the second quarter, as many miners fled the field due to mining costs that were higher than actual cryptocurrency values. Combined with its mining income, the company’s total revenue for the three months dropped by more than two-thirds to $31.9 million. To put this in perspective, product sales traditionally comprised the majority of Canaan’s revenue during crypto bull runs. But in the second quarter, this segment accounted for less than half of its total revenue.

On top of the sharp top-line contraction, Canaan also took a big charge for inventory write-downs and fair-value losses on its crypto holdings. The result? A second-quarter net loss of nearly $100 million, a massive increase from $11 million a year earlier.

The company operates on pretty thin liquidity, with its cash totaling less than $70 million at the end of June. It doesn’t help that Canaan is in the middle of a share buyback program, committed to spending $30 million repurchasing its stock through the end of this year. That’s a significant amount for a company struggling to generate cash from operations. To bridge that gap, Canaan sold some of its crypto assets last month.

Inventory conundrum

Crypto miners struggle these days as they face high costs that easily exceed their revenue. When the economics of mining become unfavorable that way, hardware manufacturers face massive impairment charges for inventory they can’t sell. For Canaan, this means that the fair market value for one of its Avalon 16-series machine plunges as it sits in a warehouse unsold, forcing the company to make direct write-downs on its balance-sheet.

Inventory costs are a fact of life for manufacturers like Canaan. But they can be managed. Canaan is looking to keep its inventory in check by deploying some unsold products into its own mining operations. This way, the company can convert idle machines into operational computing power, instead of writing them down or selling them at deep discounts. This allows Canaan to keep generating revenue, with the potential to book financial gains if its crypto assets appreciate in value.

But during a crypto downturn like the latest one, Canaan has no way of stopping its revenue from sliding. Cryptocurrencies are staging a strong late-summer comeback, driven by a convergence of improvements in macroeconomic conditions and renewed institutional demand. Yet the outlook for Canaan remains rather dark. Management said it expects the company’s third-quarter revenue to total just $11 million to $15 million, with much of that likely coming from its mining operation, as an industry-wide inventory glut undermines its machine sales.

“Looking ahead to the third quarter, although bitcoin price recovered somewhat at the end of August, miner procurement remains cautious, and the industry inventory still needs to be digested,” CEO Zhang Nangeng said on the company’s earnings call. “Some competitors have adopted a more aggressive pricing strategy to speed up cash collections. We expect miner sales and the average selling prices to remain under pressure in the third quarter.”

On the mining side, while higher digital asset prices increase the value of each coin mined, that lift alone can’t boost Canaan’s revenue from this business. That’s because when market prices rise, other miners turn on more machines across the globe, shrinking the number of coins Canaan actually mines each day due to the fixed supply of new coins. This means that the output of Canaan’s mined coins can decrease, offsetting benefits of rising crypto prices.

Predictably, Canaan shares tanked following the release of its second-quarter results, losing some 14% of their value in three days. They now trade at a price-to-sales (P/S) ratio of just 0.3, well below 1.94 for smaller rival Ebang International (EBON.US), which also runs its own crypto mining operations, in addition to its core business of making hardware.

For now, Canaan can keep buying its own unsold machines and running them to produce its own virtual currencies as long as demand from external customers stays weak. But that type of self-dealing isn’t really a practical long-term business model, leaving the company caught between a rock and a hard place until the next crypto boom takes hold.

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“There’s been a very definite trend of what I would call re-transferring part of the economy from the private sector to the state sector.” — on Beijing’s regulatory retreat from private consumer finance back toward state dominance

By Rene Vanguestaine and Doug Young

Two vastly different segments of Chinese business are facing deep regulatory skepticism this month, one abroad and the other at home. Fast-fashion phenomenon Shein (0625.HK) has found its planned purchase of U.S. clothing label Everlane getting snagged in an improbable national security review in Washington. Meantime, China’s remaining cohort of private fintech lenders is getting plunged deeper into crisis following a multibillion-dollar fraud case. Together, these developments highlight how swift political tides can unravel business models on both sides of the Pacific.

Things have never been smooth for Shein outside its core fast-fashion business. The apparel powerhouse long served as a lightning rod for criticism over questionable labor practices, environmental complaints, and its aggressive use of customs loopholes to dodge U.S. and European import tariffs — concerns that scuttled its initial plans for a U.S. IPO roughly three years ago.

Now, Shein’s $80 million bid to acquire Everlane is undergoing scrutiny by U.S. national security regulators. The deal raised eyebrows from the moment it was announced, given that Everlane built its brand identity on corporate responsibility, environmental sustainability and ethical supply chains. Yet it’s nearly impossible to argue that Shein’s acquisition of an activewear and basic apparel brand threatens U.S. national security.

Instead, the pushback looks to have originated from within. When businesses lean heavily into environmental and worker protections, their workforces tend to care deeply about those standards. There are plenty of documented cases where corporate staff revolted against leadership — perhaps most famously when employees at Google rebelled against management over contracts with the U.S. Department of Defense. We think it’s likely that Everlane employees, alarmed by Shein’s labor and environmental record, agitated and persuaded unions or sympathetic regulators to intervene.

Beyond internal discontent, this review is another pawn in an escalating tit-for-tat between Washington and Beijing over cross-border deals. We don’t necessarily view this as the start of a trend, but it’s bound to ratchet up tensions. While national security remains a valid hurdle in advanced technology, regulators increasingly cite it as cover for economic protectionism and job defense. We’re observing similar resistance across Europe: France has long resisted foreign acquisitions, while Germany has steadily hardened its stance over the past two years, exacerbated by Beijing’s perceived diplomatic support for Russia in Ukraine.

A grim reckoning for China’s fintech pioneers

Meanwhile back in China, an entire private industry is falling apart. China’s private online lenders were once high-flying market darlings, but their latest quarterly reports look outright scary, marked by steep declines in top-line revenue and cratering profits.

Investor sentiment soured further after CreditEase (YRD.US) suspended principal and interest payments on $4.4 billion worth of wealth management products in May in a suspected fraud case. Although wealth management operated alongside consumer credit, an alleged fraud of that scale is staggering, and it seems to have triggered fresh regulatory crackdowns on China’s beleaguered fintech lenders.

This clampdown reflects a broader, decade-long reassertion of state control over the Chinese economy. While policymakers in Beijing acknowledge they need private enterprise to foster development of advanced technology, they’ve increasingly decided they don’t need private players in retail finance. The lending sector has shrunk from roughly 4,000 active platforms during its peak between 2017 and 2019 to fewer than 100 today.

These platforms originally boomed because state-owned banks preferred safe, guaranteed returns lending to state-owned enterprises rather than doing the hard work of assessing consumer credit risk. But as private platforms flourished — charging all-in fees and borrowing costs that frequently topped 30% to 35% — state banks pushed back. State lenders resented that private fintech upstarts operated without mandatory capital reserve cushions and grew envious of their immense profits.

Regulators stepped in, repeatedly lowering caps on permissible interest rates and service charges. A further tightening late last year and earlier this year made it nearly impossible for these companies to turn a meaningful profit. Compounding their misery, China’s sluggish consumer economy has prompted shoppers to curtail spending and rein in debt. We think investors should stay away from these names. While a tiny handful might survive, picking the rare survivor from this wreckage is a risk not worth taking.

The fintech loan facilitator’s second-quarter profit plunged as a funding squeeze in the wake of two major sector scandals forced it to scale back its business

Key Takeaways:

• Qfin’s net revenue dropped 32% year-on-year in the second quarter, with its net profit plunging 77% as its new loan originations shrank
• Banks are pulling back from providing funding for online loan facilitators like Qfin after back-to-back scandals involving the sector in May and June

By Warren Yang

China’s private fintech lenders and loan facilitators have had a tough run for the last six or seven years, coming under near-nonstop pressure from growing regulatory scrutiny over that time. But just when it seemed like many were adjusting, the group is quickly learning that things can get even worse.

The latest financial results from Qifin Holdings Inc. (QFIN.US; 3660.HK), formerly known as 360 DigiTech and Qifu, serve as a fresh reminder of this predicament for the rapidly contracting sector. Challenges for the group, most of them loan facilitators between banks and borrowers, are multifaceted. Following two high-profile scandals this year, they are facing a liquidity squeeze as banks pull back from providing capital for them. At the same time, the regulatory scrutiny just keeps growing, a familiar theme for them.

Qfin’s revenue dropped 32% year-on-year and 9% sequentially to 3.57 billion yuan ($491 million) in the second quarter, according to its disclosure last week. Its net profit took an even bigger hit, plunging 77% year-on-year and 54% quarter-on-quarter to 401 million yuan, dragged down by reduced loan origination, tighter interest margins and a one-off tax-related expense of about 500 million yuan.

The latest downturn for Qfin and its peers stems from a double blow to industry credibility this year. The first hit traces back to a May crisis after major player CreditEase suspended both principal and interest distributions for 30 billion yuan of fixed-income wealth management products issued by its Heritvest subsidiary. That scandal triggered an immediate regulatory dragnet targeting shadow-banking channels and non-bank credit facilitators. China’s sluggish economy also continues to make it difficult for lenders to boost loan growth without taking on greater risks.

Regulators clamped down after the CreditEase scandal with cross-agency audits and forced wind-downs of shadow wealth products. That pushed risk-averse commercial banks to pre-emptively tighten credit lines and demand more payment guarantees and security deposits from online loan brokers. This dual pressure squeezed Qfin in two ways. First, it was forced to drastically cut its margins to keep panicked bank partners on board. Second, it had to scale back overall loan facilitation and origination volumes.

Making matters worse, in late June, Juzi Digitech, a niche online loan facilitator targeting subprime consumer borrowers, was found to have diverted user loan repayments into an illicit capital pool, leaving its partner banks empty-handed and exposing nearly 30 billion yuan in non-performing assets. This led commercial banks to curtail their collaboration with loan facilitators even more, dealing a further blow to everyone, including Qfin.

On its earnings call, Qfin CEO Wu Haisheng noted that the late-June liquidity shock forced the company to take drastic measures. It slashed customer acquisition spending in the second quarter, and consequently, its total loan facilitation and origination volume shrank by a quarter year-on-year. As a result, its outstanding loan balance at the end of June was about 23% smaller than a year earlier.

"In the second quarter, we navigated a challenging market environment marked by continued industry contraction, tighter regulatory oversight, and a sudden industry-wide liquidity shock in late June,” he said. “Looking ahead, we expect industry adjustments to continue, with funding conditions and risk management likely to remain under pressure. In response, we will adopt an even more prudent approach to growth, risk, and capital allocation to preserve our resilience through the cycle."

Fintech winter

Reflecting this grim outlook, Qfin said it expects its non-GAAP net profit to drop by up to 73% year-on-year to 360 million yuan in the third quarter. It also trimmed its semi-annual dividend.

Rival LexinFintech (LX.US) also felt the full impact of the liquidity shock, delivering a second-quarter performance this week that marked a severe break from its recent recovery trajectory. Its quarterly operating revenue fell 11% year-on-year to 3.19 billion yuan, while its net profit tumbled 80% to 101 million yuan. Like Qfin, Lexin’s outstanding loan balance shrank, and it canceled its semi-annual dividend. Worse yet, Lexin warned that it expects to plunge into the red in the third quarter.

Apart from taking a major hit from the funding environment’s sudden deterioration, Qfin also continues to grapple with a weak macroeconomic climate that is causing more borrowers to default. The ratio of its loans overdue for 90 days or longer jumped 86 basis points to 2.83% at the end of June from a year earlier. It also boosted provisions for loan receivables by 20%.

Unsurprisingly, Qfin shares have tanked since the release of its second-quarter report, losing nearly a quarter of their value in three days. They now trade at a rock-bottom price-to-earnings (P/E) ratio of just 2. Its peers are also under pressure, with Lexin fetching an even lower P/E ratio of 0.72 after its shares lost a quarter of their value in the two trading days following the release of its latest report.

As things stand now, no investor would see these low multiples as bargain-hunting opportunities. Rather, such low valuations reflect deep market skepticism about whether Chinese online loan facilitators can navigate the current squeeze on multiple fronts and emerge unscathed. With bank partners pulling back funding, credit risks rising and regulators tightening their grip, platform operators really have no other choice but to shrink their operations.

Qfin can try to rebuild its business by developing low-risk technology services for state-backed institutions. But this area is already quite competitive, as large banks are developing their own digital capabilities as well.

Qfin and its peers should be used to this kind of chilly climate by now, so this latest winter blast isn’t really anything they haven’t seen before. But with no signs of a spring thaw on the horizon, the group will continue to suffer. And then there’s always the very real possibility that another scandal or other regulatory tightening could make the current bone-chilling climate even colder.

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The credit-tech platform reinforced its China business with improved risk metrics in the second quarter, while turning its overseas business into a more meaningful profit source

Key Takeaways:

• FinVolution’s risk performance was relatively steady in the face of industry turbulence in the second quarter, as it enhanced its anti-fraud capabilities with 60 system upgrades
• Overseas markets made a growing profit contribution for the fintech lender as it expands into more geographies and broadens its product lineups

By Teri Yu

For fintech lender FinVolution Group (FINV.US), the second quarter was less about dramatic reinvention than proving that its familiar playbook can still work. That meant keeping its domestic lending platform stable, maintaining a conservative grip on credit risk and continuing to develop its overseas businesses into a genuine second growth engine.

The Shanghai-based fintech reported second-quarter revenue of 3.4 billion yuan ($501.6 million), up 6% sequentially but down 4.9% year-on-year, according to its latest quarterly report released on Thursday in the U.S. Its net profit reached 426.8 million yuan and its facilitated loan volume totalled 44.8 billion yuan, while its managed loan balance stood at 67.9 billion yuan at the end of June.

The sector is going through a major adjustment for its core Chinese lending business, marked by tighter regulatory scrutiny, more conservative funding partners and pressure on loan volumes. An unexpected event at an industry peer in late June triggered a broader liquidity squeeze, prompting institutional investors and funding providers to reassess their exposure to loan-facilitation platforms.

FinVolution posted quarter-on-quarter growth in loan transaction volume, net revenue and net profit, while its year-on-year declines were smaller than those reported by several listed peers, including Qfin (QFIN.US), whose net income fell 54% sequentially. FinVolution points out it is benefiting from a relatively resilient operating base and disciplined risk management during a difficult period for China’s credit-tech sector.

During such uncertain times, FinVolution has also pointed to its healthy cash balance, steady domestic business, and an overseas arm now delivering results after years of development. The company is betting that its nearly two decades of technology, risk-management and operating expertise can keep it relevant in China’s tighter credit market while it builds a broader international franchise.

FinVolution reported that its cash and short-term investments stood at roughly 7.5 billion yuan as at the end of August. Its assets totaled approximately 26.07 billion yuan, while its net assets stood at about 16.74 billion yuan at the end of the second quarter. The company’s leverage ratio remained at a relatively modest 2.1 times, giving it a financial buffer that may be valuable as funding conditions become less predictable.

Management has also continued to return money to shareholders. FinVolution has paid dividends for eight consecutive years, with a payout policy generally set at 20% to 30% of net profits. In the first half of 2026, the company also repurchased $66.8 million worth of its shares. Over the past three years, the company says it has returned roughly 50% of its annual profits to shareholders through repurchases and dividends combined.

“During the second quarter, we continued to make solid progress across both our domestic and international operations,” CEO Li Tiezheng said. “Our China business remained resilient as we further optimized customer quality and strengthened risk controls, while our overseas operations continued to demonstrate their growth potential. We believe our dual-engine strategy, technology capabilities and prudent financial management give us a strong foundation to navigate market changes and create long-term value.”

Focus on quality at home

FinVolution’s China business remains its foundation. The company said its domestic operation had cumulatively served 30.1 million users by the end of the second quarter, giving it a sizeable base in a market where competition is intense and regulators have placed a greater emphasis on transparency, consumer protection and sound funding practices.

The company’s key domestic achievement in the quarter was an improvement in its asset quality. Its C-M2 delinquency indicator improved from 0.68% to 0.56% by the end of June, while its 30-day collection rates improved from 87% to 89%. The company said credit costs on newly originated loans remained stable at about 2.7%, while the delinquency ratio for loans more than 90 days overdue was 2.1%. The company pointed out it enhanced its anti-fraud capabilities in the second quarter with 60 system upgrades.

China’s consumer-finance market is still adjusting to a slower economy and more caution at the household level, making steady borrower quality paramount in a climate of increased uncertainty. To adjust to that climate, FinVolution is favoring selective customer acquisition and a careful scale-to-risk balance. Such discipline appeals to its institutional lending partners, as it makes a transition to becoming a more transparent, compliance-oriented credit-tech and loan-facilitation platform.

Overseas business steps up

If the domestic business is about discipline, FinVolution believes its international operation is increasingly about opportunity.

The company said its overseas business generated revenue of 930.3 million yuan in the second quarter, up 18% year-on-year and accounting for about 27% of its total. Its overseas operating profit reached 53.6 million yuan, up 17% sequentially and more than doubling from a year earlier, according to the company.

FinVolution is spreading its bets across several markets rather than relying on a single one. In Indonesia, it has been expanding its offline buy-now-pay-later (BNPL) offerings into additional retail and consumer settings. Offline BNPL accounted for roughly 25% of the company’s Indonesian transaction volume at the end of the second quarter.

Pakistan is developing along a similar path. Offline BNPL accounted for nearly 30% of its local transaction volume, with more than 1,000 merchant partners participating in the network. The company described the business as holding a leading local position, though it will need to maintain underwriting discipline as merchant-based financing expands.

In the Philippines, FinVolution said it is prioritizing asset-quality improvements and more cautious operations. In Australia, which it recently entered through a local platform acquisition, the company is expanding its product offerings and user base. Its Australian user count rose 22% sequentially in the second quarter.

Going forward, FinVolution is likely to continue facing a challenging environment in the domestic credit-tech market. Regulatory requirements continue to rise, liquidity is tighter and funding partners are likely to become more selective and conservative.

FinVolution’s combination of roughly 12.5 billion yuan in funding reserves, modest leverage, stable domestic risk metrics and profitable overseas operations give it a useful cushion in such uncertain times. Its continued dividends and buybacks reinforce the message that its cash generation remains healthy even as the market turns more cautious.

The next test will be its ability to preserve that balance by growing internationally while keeping a cautious, compliance-led approach that has helped it survive so far in a turbulent period for China’s fintech industry.

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The company returned to profitability in the first half of 2026 after three years of annual losses, but whether it can sustain that momentum remains to be seen

Key Takeaways:

• Linklogis expects to post a modest net profit for the first half of this year, reversing a massive loss a year earlier due to write-downs related to its legacy property assets
• A key driver of this swing is AI-driven efficiency gains and the absence of large impairment charges, which raises questions about the rebound‘s sustainability

By Warren Yang

After years of being pelted by fallout from China’s prolonged real estate slump, Linklogis Inc. (9959.HK) is finally signaling a turn in its fortunes. But as a financier, the company is also probably well aware that its improvement, based mostly on accounting factors and better efficiency, means that more work lies ahead to make the comeback truly complete.

Last Friday, the Tencent-backed provider of online supply chain financing services said it expects to post a consolidated net profit of 5 million yuan ($700,000) to 25 million yuan for the first half of this year. While modest, the figures represent a dramatic swing from three consecutive years of annual losses, including an eye-popping 379.7 million yuan net loss in the first half of 2025.

For a company whose share price crumbled into penny-stock territory at the height of its woes, the return to profits may signal its multi-year turnaround efforts are finally bearing fruit.

Founded in 2016, Linklogis built its business by digitizing supply chain finance. By acting as a technological middleman between large enterprise "anchor" buyers, their suppliers, and commercial banks, Linklogis simplifies the process of securitizing trade receivables and extending short-term credit.

However, its early reliance on China's large property developers proved to be a double-edged sword. That group was a handy source of profits for Linklogis during the sector’s boom years. But as some of its key real estate clients started facing liquidity crunches in late 2021, Linklogis began booking large impairment charges linked to their unpaid receivables.

A major contributing factor to last year‘s first-half loss came from provisioning for legacy warehoused supply chain assets, or receivables that got stuck on Linklogis’ books in the brief period it held them before its typical practice of passing them on to financial institutions.

In the past two years, management has set out to overhaul the business model. Linklogis has steadily expanded its partner network to thousands of anchor enterprises and hundreds of financial institutions, pushing its supply chain finance services into non-property sectors such as advanced manufacturing, renewable energy and consumer goods.

The company has also been aggressively writing off legacy bad debt while promoting a cloud platform that digitizes financing and automated payments for Chinese cross-border e-commerce sellers on platforms like Amazon and Shopee, as well as manufacturers expanding into Southeast Asia and the Middle East.

Linklogis is also using AI to enhance its operational efficiency. Leveraging its proprietary large language model, LDP-GPT, and its enterprise AI agent framework, BeeLink, the company has automated significant parts of its credit risk assessment process, document processing and customer onboarding to facilitate customer acquisition and expand the scale of assets it handles.

In its profit alert, Linklogis said AI-driven automation led to a sharp drop in its expense-to-revenue ratio during the first half of 2026. At the same time, higher average revenue per customer and a healthy customer retention rate helped restore its top-line growth.

Brief respite

Yet the upbeat earnings outlook may only provide a brief respite for the company’s long-suffering stock. Linklogis shares initially rallied a bit on Monday, the day after the announcement, but ended the day down 1.3%. The company’s stock has lost more than 80% of its value since its IPO in April 2021, when it raised $1 billion amid peak market interest Chinese fintech disruptors.

The cool reaction to the latest news suggests that investors remain skeptical about the company’s prospects, probably for good reason. The core question is whether this modest profit for the first half marks the beginning of a sustained recovery, or merely a temporary outcome resulting from aggressive belt-tightening and efficiency improvements.

In a business where transaction volumes are a company’s lifeblood, returning to the black on just 25 million yuan or less in net profits means that underlyling operating margins are probably razor thin – a factor investors will be watching when Linkogis announces its full midyear results on Aug. 20. And as noted earlier, the bottom-line swing owes in large part to the absence of massive write-downs, rather than explosive top-line revenue growth.

Ultimately, Linklogis’ long-term earnings growth will depend on its ability to generate sufficient income from non-property customers. The company’s revenue fell last year, down 4.7% to 983 million yuan, meaning investors will also be watching closely to see if the figure returned to growth in the first half of 2026.

Crucially, the company must cultivate LDP-GPT and BeeLink agents to earn higher-margin recurring fees and reduce its historical dependency on one-off transactions. That kind of transformation would help change Linklogis into a capital-light technology provider from its current status as a de-facto bearer of credit risk for its customers.

Equally important will be expansion overseas, specifically in markets like Southeast Asia and the Middle East. Such places are relatively less competitive than more mature Western markets, though they also pose challenges from local bank networks and regulations that are vastly different from China‘s.

Investors will also pay attention to whether a recent leadership change will help accelerate this evolution. In April, Zhao Yu resigned after seven years as the company’s CFO, a tenure during which the former Tencent M&A manager helped guide Linklogis through its Hong Kong IPO and its capital-intensive growth phase.

The transition of financial oversight to Vice President Huang Weibo, an executive with strong tech-platform operational experience as the former CFO of fitness app Keep Inc., may signal a broader management pivot away from capital-driven expansion toward lean corporate finance and operational cost discipline.

Linklogis shares currently trade at a price-to-sales (P/S) ratio of 3.9, a figure that is modest for a tech-oriented company but looks much better than valuations for pure online loan facilitators like FinVolution (FINV.US), which trades at a multiple of just 0.6. Given that FinVolution is stably profitable, the valuation contrast indicates investors may view Linklogis as a tech-enabled software platform going through an operational turnaround, while treating FinVolution as a mature, regulated credit provider. They may also prefer Linklogis‘ positioning as a manufacturing-oriented financier, as Beijing strongly supports that sector, versus FinVolution’s focus on consumer and small business finance.

If Linklogis can maintain its high customer retention rates while expanding its reach across advanced manufacturing and global trade, its multi-year pivot away from property finance could serve as a rare playbook for Chinese fintechs making similar structural shifts. But for now, at least, the turn back to the black only gives management some much-needed breathing room to show shareholders it‘s capable of operating profitably again on an ongoing basis.

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Four directors at the Ping An-backed online loan facilitator, including its CFO, resigned as it races to resolve its prolonged Hong Kong trading suspension

Key Takeaways:

• Four Lufax board members associated with controlling shareholder Ping An resigned, as the company appointed one new independent director
• The move may be aimed at improving governance as a deadline to meet requirements for a trading resumption of its Hong Kong-listed shares passed this week

By Warren Yang

Just when it looked like a prolonged drama surrounding embattled fintech lender Lufax Holding Ltd. (LU.US; 6623.HK) might be wrapping up, the action has only intensified.

Last Friday, the company announced the departure of nearly half of its board, with the resignation of four of the nine members, including CFO Xi Tongzhuan. All four cited "personal work arrangements" and affirmed they had no disagreements with the board.

Despite its attempt to keep the mass exodus low-key, such a large, abrupt shakeup, including a C-suite executive’s departure, never looks normal. Without an official explanation, investors can only look at the evidence to try to figure out the meaning behind the latest turbulence at the Ping An-backed online loan facilitator. The timing is especially poignant as the company struggles to emerge from an accounting scandal dating back more than a year, and is now at a crucial juncture when its Hong Kong listing status is in danger.

Also strikingly, Lufax shareholders formally voted to re-elect those four members just a month ago. Now, Lufax needs to search for a new CFO. In the interim, an internal finance team will assume CFO duties, while CEO Ji Xiang will handle liaison with the Hong Kong Stock Exchange. All four departing board members hailed from Ping An, which owned 73% of Lufax’s shares at the end of last year, according to its latest annual report.

Lufax filled only one of the four vacant seats by bringing in Wai Kin Chim, a veteran banker with four decades of international experience in risk management and internal controls, as a new independent non-executive director. So, the company’s board has not only shrunk in size but is mostly composed of independent directors, with CEO Ji as the sole executive member. Ji himself is also quite new to Lufax. He first joined the company as a co-CEO only last October and was elevated to the top position in April.

The board shakeup seems aimed at improving governance as Lufax takes steps to shake free from its painful accounting scandal and avoid a delisting of its shares in Hong Kong. Lufax’s New York-listed stock gained about 5% in two days after announcing the board overhaul. That indicates investors think the latest changes are a step in the right direction.

The company has faced intense scrutiny since January 2025, when it removed its former auditor, PricewaterhouseCoopers (PwC), after the accounting firm raised questions about undisclosed related-party transactions and internal control deficiencies. Subsequent internal reviews forced Lufax to restate its financials for 2022 and 2023, revealing serious serial overstatements of its profit.

The saga resulted in a delay of the company’s publication of its annual results for 2024, triggering a trading suspension for its Hong Kong-listed shares in January last year. Its New York-listed stock avoided a similar halt, and the company has regained full compliance with the U.S. bourse since completing its necessary filings with the Securities and Exchange Commission.

But resuming trade in Hong Kong has proven far more onerous. Beyond clearing its missing filings for 2024 and 2025, Lufax must also satisfy strict trading resumption conditions, including independent forensic reviews and internal control overhauls. The clock is ticking for the company, since Hong Kong listing rules give it just 18 months from the suspension to meet the resumption requirements. Its shares were suspended on Jan. 28 last year, meaning that window technically closed on Monday this week.

A Hong Kong company filing last Friday contained an update on efforts to meet the trading resumption requirements, including a more detailed description of the board overhaul and operational data for the second quarter of this year. But it did not specify when the company’s Hong Kong shares might resume trading.

CFO vacuum

Satisfying Hong Kong’s stringent regulatory demands appears to be the main driver behind Lufax’s board reshuffle, including the addition of directors specializing in internal controls, audit oversight and risk management. Prior to Chim’s appointment, the company added accounting and audit veterans to its board.

It all seems sensible, but the CFO departure can also complicate things for Lufax as it leaves an immediate leadership vacuum at a time when the Hong Kong bourse is probably looking for proof of management stability and financial integrity.

Beyond governance headaches, Lufax’s core loan facilitation business faces an equally vexing challenge from a rapidly cooling Chinese economy. Once famous as a peer-to-peer (P2P) lending powerhouse, Lufax has spent recent years restructuring its business model toward facilitating loans between institutional lenders and small and micro-businesses.

But that sector has come under severe pressure lately. Small business owners in China are grappling with sluggish consumer demand, property market drags and margin compression. In response, Lufax is strategically pivoting toward lower-risk borrowers, but that’s a more limited pool that is targeted by many other lenders these days as well.

Reflecting all of that, the company said that 95.7% of its outstanding balance, excluding its consumer finance business, bore risk at the end of June, up sharply from 84% a year earlier. But the company’s loan delinquency rates were down in the second quarter from a year earlier as it became more conservative, with its outstanding loan balance shrinking by 13.5% year-on-year to 167.3 billion yuan ($24.7 billion).

Despite the two-day rally after the board shakeup, Lufax shares are still down more than 40% this year and trade at a depressed price-to-sales (P/S) ratio of 0.35. Among other Chinese loan facilitators, FinVolution (FINV.US) fetches a P/S ratio of 0.64, better than Lufax’s but nothing to brag about.

Such low valuations reflect general investor disdain toward lenders in China as they bear the brunt of the country’s economic weakness. On top of that, Lufax urgently needs to convince Hong Kong authorities that it has completed its internal cleanup and has truly reformed to keep its place on the city’s exchange.

A failure to do that could trigger deeper U.S. regulatory scrutiny over whether the company meets listing standards to keep trading in New York. One thing that seems certain is investors will be reluctant to buy its New York stock as long as the shares remain suspended in Hong Kong. Either way, the stock is likely to face more downward pressure for the foreseeable future.

That raises the question for Ping An of whether it’s worth keeping Lufax listed at all. Tellingly, it took its OneConnect financial services unit private last year.

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Net profit for the elite dealmaker's wealth management subsidiary more than doubled in the first half of the year, providing crucial earnings stability as investors shun real estate

Key Takeaways:

• Profits from CICC’s wealth management unit surged in the first half of this year to account for at least 29% of the company’s earnings
• Unlike the company’s core investment banking business, which is highly variable, fee-based wealth management is a more stable income source

By Warren Yang

As China’s elite investment bank, China International Capital Corp. Ltd. (CICC)(3908.HK; 601995.SH) has thrived for decades on its close relationship with the nation’s institutional capital. Now, it’s after retail wealth as well.

That addition was evident in the latest financials for the company’s wholly-owned subsidiary, China CICC Wealth Management Securities, which showed that business is an increasingly important piece of CICC’s profit picture. In the first half of this year, the wealth management unit pulled in 6.14 billion yuan ($845 million) in operating revenue, yielding a net profit of 2.39 billion yuan, according to the filing posted last Friday.

The company didn’t provide year-on-year changes in the disclosure, which also didn’t include any data for its older investment banking business. But based on its previously reported figures for the first half of 2025, these numbers mark pretty remarkable growth. They show the unit’s operating revenue jumped more than 60%, and its net profit more than doubled.

The wealth management business is good for investment services companies like CICC because it provides some earnings stability. Fee income from such services is recurring, and hence sticky, as long as clients stick around. By contrast, investment banking revenue is typically cyclical and volatile, depending on capital market and economic conditions — as well as regulatory changes that are a regular feature in the Chinese landscape.

Fee income accounted for more than half of the wealth management unit’s total revenue in the first half of this year. Business updates for the unit are required under China’s interbank and exchange regulations, since it operates as a standalone state-regulated financial institution that issues debt in the domestic market. But breaking out the unit’s performance from the parent company’s consolidated report also serves a good narrative purpose. CICC’s latest disclosure makes it quite clear that the company isn’t just a highly cyclical investment bank, but also generates steady revenue as a durable wealth manager.

Structural changes in China’s retail investment environment support the rationale behind CICC’s pivot toward wealth management. For decades, the wealth accumulation playbook began and ended with real estate for China’s most individual investors. But with the country’s property sector mired in a prolonged downturn characterized by falling prices, with no clear bottom in sight, that asset class has broken down as an attractive mainstream investment. That means a huge pool of money that once automatically flowed into brick-and-mortar speculation is now looking for a new home.

Great migration

This great capital migration is driving a boom in demand for financial products not linked to the property market. Boston Consulting Group projects that Chinese household wealth invested in financial products will expand at a robust annual clip of 9% through 2030 after expanding 15% last year. That’s a stark contrast from everything related to real estate, which remains unattractive. As a case in point, total residential sales value dropped 13% last year, and the aggregate volume of individual mortgages shrank nearly 18%.

Individual investors swapping out real estate duds for financial products are providing some nice structural tailwinds for sophisticated professional wealth managers like CICC.

On the other hand, CICC’s traditional bread-and-butter investment banking is only just emerging from a brutal multi-year cyclical slump. A prolonged domestic economic slowdown, combined with a severe tightening of regulatory gates for IPOs both at home and overseas, choked the company’s deal pipeline to a crawl in the past couple years. While primary underwriting and IPO volumes recovered in the first half of this year, buoyed by accelerated regulatory vetting for pre-profit tech firms and a listing boom in Hong Kong, the prolonged drought explains why CICC’s focus is tilting toward a steadier business like wealth management.

That business played a major role in a sharp rebound for CICC’s overall performance in the first half of this year. Earlier this month, CICC said its overall profit rose 78% to 90% in the first half of 2026. That means the wealth management business accounted for at least 29% of the company’s net profit during the period, up from 23% in the first half of last year.

The household migration away from real estate and into financial products coincides with a larger, state-directed reordering of China’s investment services industry. Plagued by decades of fragmentation across 140-plus legacy brokerages, the sector is undergoing a massive consolidation driven by Beijing's mandate to cultivate a small elite class of top-tier global investment banks by 2035. The newly formed powerhouse Guotai Haitong Securities Co. Ltd. (2611.HK), born from a landmark merger last year between two of China’s largest brokerages, recently reported a spectacular 164% to 171% surge in recurring net profit during the first half of this year, demonstrating how massive scale can quickly unlock high-margin wealth advisory synergies.

To avoid being left behind in that race for scale, CICC is taking action as well. The firm is currently advancing a monumental three-way consolidation to absorb Dongxing Securities (601198.SH) and Cinda Securities (601059.SH) through a share-swap transaction formally accepted for review by the Shanghai Stock Exchange last month.

By buying its way into a massive, ready-made retail footprint through the absorption of its two smaller peers, CICC is leveraging its institutional brand to build a powerhouse wealth ecosystem capable of taking on the industry's newly engineered titans — with full government backing.

CICC’s Hong Kong- and Shanghai-listed shares both rallied for two straight days after the latest report card for its wealth management business. Each now trades at a price-to-earnings (P/E) ratio of 10, similar to the 10.7 for domestic rival Citic Securities (6030.HK; 600030.SH), but well below multiples for international powerhouses like Goldman Sachs (GS.US), which trades at 16.

That valuation gap probably reflects a fundamental difference in their business models. Wall Street banks long ago transformed into providers of diversified financial services including wealth management, while CICC is still primarily perceived as an investment bank. But if CICC’s wealth management business continues to rise and shine, a revaluation of its stock could well be in the cards.

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The company unveiled an AI-powered terminal at its new showroom in Hong Kong’s financial district as it chases high-net-worth individuals seeking investment advice

Key Takeaways:

• JF SmartInvest opened a physical store in Hong Kong where visitors can try out its new AI-powered terminal for investment portfolio analysis
• The company is pivoting from its traditional focus on investor education to the higher-margin business of providing financial information and advice

By Warren Yang

If you’ve ever sought a chatbot’s advice on whether to buy Apple, short Tesla, or jump into an obscure biotech stock, you’re not alone. Across the globe, millions of retail investors are outsourcing their financial due diligence to AI-powered large language models. So, it comes as little surprise that the financial services industry is racing to capitalize on growing human interest in using AI to earn some fast money in the stock market.

The latest strategic move from JF SmartInvest Holdings Ltd. (9636.HK), an investor education and financial information provider, underscores just how influential AI has become in a very short time. In a filing to the Hong Kong stock exchange last Friday, the company announced its opening of a four-story flagship store in the city’s financial district. That’s where it will showcase its proprietary AI investment terminal for individual traders, also announced in the filing. Finally, the company will also offer virtual asset trading and advisory services in the city, pending regulatory approval from Hong Kong’s Securities and Futures Commission (SFC).

The opening of the new physical site by subsidiary Forthright Securities doesn’t make much sense at first glance in an era when financial services are migrating to the cloud and few people visit brick-and-mortar brokerage offices anymore. But JF SmartInvest calls the site Hong Kong’s “largest offline investment experience hub,” spanning a massive 19,337 square feet in Hong Kong’s financial district. The company didn’t disclose how much money it was dishing out for the project. But rent for that much real estate in the city, known for its high property costs, must be enormous.

If the goal is to introduce wealthy investors to AI applications and convert them into lasting customers, then the flashy move may prove worth the money as a savvy marketing tool. The store showcases the Forthright AI Investment Terminal, a computer with a high-performance display and advanced internal processors that offers global market quotes, institutional-grade research, portfolio diagnostic tools, and multi-asset trading across equities, options, futures, funds and virtual assets.

The terminals are part of an investment ecosystem that JF SmartInvest is looking to build, spanning AI-powered analytical tools, in-house research and human advisory services. And at the new Hong Kong shop, which appears to target high-net-worth individuals, the company’s customers can experience this concept in real life. They can run an automated portfolio diagnostic on the AI terminal, and then step into a private meeting room with a licensed adviser to refine investment strategy before executing trades. For retail investors, the allure is obvious: institutional-grade analysis without the need for institutional expertise, including reading and digesting long financial reports.

Demand for financial intelligence in Hong Kong is set to grow amid a massive influx of investor capital into the city. Assets under management in Hong Kong swelled 20% last year alone to a record HK$42.2 trillion ($5.4 trillion), fueled by a resurgence of the financial hub’s stock market, among other things.

JF SmartInvest’s business is booming as well. Its revenue rose 49% to 3.43 billion yuan ($480 million) last year, while its net profit soared 238.5% to 921.8 million yuan, which translates to a net profit margin of 27%, up sharply from 11.8% for 2024. Much of that came as strong gains in China’s equity markets stoked interest in stock trading by retail investors who are one of JF SmartInvest’s biggest customer groups.

Behind the headline numbers is a structural shift in how the company makes its money. Historically dependent on human-intensive investor education services, JF SmartInvest is increasingly relying on subscription-based financial software platforms like Qinlong and Jiuyao Stocks, AI-driven analysis and decision-support tools for individual investors, as its primary growth engines.

Sticky customers

The Forthright AI Investment Terminal shows that JF SmartInvest continues to try to cultivate new high-margin income sources. By offering hardware powered by its own AI software, the company can build a base of loyal customers who are serious about trading. A physical machine sitting on an investor's desk creates a much higher commitment, and thus greater customer loyalty, than a simple smartphone app.

This isn’t the first time the company has rolled out its own hardware. Back in 2024 the company introduced its Easy-Stock Pad, a tablet computer equipped with the company’s software to give users easy access to all of its offerings, from online classes to investment and research tools using AI and big data analysis.

Though it sounded like a gimmick at that time, sales of the device — priced starting at 2,000 yuan — have exceeded 100,000 units. It may not be a massive number, but it does suggest that people are willing to pay for physical devices dedicated to JF SmartInvest’s services.

The Forthright AI Investment Terminal probably costs much more than the Easy-Stock Pad, though no price was disclosed in Forthright’s announcement. But given that its target customer seems to be affluent individuals, a relatively high price tag isn’t likely a big hurdle.

As powerful as AI is, large language models like the one that runs the Forthright AI Investment Terminal do make mistakes and can misguide investors. JF SmartInvest seems to be well aware of such risks, which may explain why it gives terminal users access to human advisors who can do sanity checks on AI-generated investment themes.

JF SmartInvest’s shares rose about 3% on Monday, the first trading day after the announcement, while the broader Hang Seng Index barely moved that day. This seems like an investor vote of confidence in the company’s latest move. The stock trades at a price-to-earnings (P/E) ratio of about 13, slightly higher than 11 for online stock broker Futu Holdings (FUTU.US). But both figures are still relatively low compared with global peers, reflecting investor caution about companies with exposure to China’s unpredictable markets.

Maintaining the Hong Kong showroom and manufacturing terminals carry high costs, even if that manufacturing is outsourced. But the rewards can be big if terminals help to retain customers in the highly competitive field, especially high-margin customers who are most likely to pay for such a premium product.

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The titan formed through the merger of two large brokerages said its profit surged in the first half of 2026 as it leveraged its massive scale to cultivate high-margin services

Key Takeaways:

• Guotai Haitong said it expects to report its recurring net profit soared as much as 171% in the first half of this year
• The company’s breakout performance shows that mega brokerages formed through a government-led sector consolidation stand to benefit nicely from their super-size

By Warren Yang

State-directed corporate matchmaking often breeds bloated corporate giants that lose out to leaner, more agile rivals, especially when the newly merged entities were already big state-owned companies. Yet under the right conditions, scale alone can be a powerful asset.

That’s certainly the case for Guotai Haitong Securities Co. Ltd. (2611.HK), a mega brokerage born from the merger of Shanghai state-backed peers Guotai Junan and Haitong Securities last year. Last Friday, the company said its net profit likely jumped 27% to 30% year-over-year in the first half of 2026 to as much as 20.5 billion yuan ($2.82 billion).

As remarkable as those numbers look, the company’s underlying business looks even more striking when stripping out a one-off accounting profit boost it booked last year. Excluding such non-recurring gains, primarily massive negative goodwill logged during the integration process last year, Guotai Haitong estimates that its recurring first-half net profit skyrocketed 164% to 171% year-over-year to 19.75 billion yuan. For the second quarter alone, the company expects to post a staggering net profit surge of nearly 300%.

To be sure, favorable market conditions are providing nice tailwinds for the brokerage sector in general. Capital markets in China have rebounded sharply, as domestic equity valuations stabilize and Beijing significantly reopens the onshore IPO pipeline.

But Guotai Haitong also unlocked post-merger synergies to drive revenue generation across high-margin segments like wealth management and investment banking – areas often dominated by larger institutions that can offer better and more diverse services than their boutique counterparts. To maximize those benefits, the company is banking on an integrated approach that bundles investment, underwriting and research services.

For the China Securities Regulatory Commission (CSRC), which is helping to steer the consolidation, Guotai Haitong’s numbers are a timely validation of the broader master plan. Since President Xi Jinping explicitly urged regulators to push for structural industry consolidation, the CSRC has set an ambitious target: cultivating two to three globally competitive, tier-one investment banks by 2035, supported by a tighter, highly professional tier of specialized domestic leaders.

Plagued by fragmentation

Before this campaign began, China’s brokerage sector was chronically fragmented. More than 140 firms, many controlled by local governments or state-owned enterprises (SOEs), routinely undercut each other on basic retail trading commissions, offering nearly identical, commoditized financial services.

The merger that formed Guotai Haitong has opened the floodgates for what has become a full-scale consolidation wave across the sector. In November 2025, elite investment bank China International Capital Corp. (CICC)(3908.HK; 601995.SH) stunned the market by announcing a three-way combination to absorb Dongxing Securities (601198.SH) and Cinda Securities (601059.SH) to create a powerhouse with more than 1 trillion yuan in assets. The massive share-swap transaction was formally accepted for vetting by the Shanghai Stock Exchange in June, and is currently pending final clearance by the CSRC.

The momentum spilled directly into 2026. In March, Soochow Securities (601555.SH) announced a plan to acquire a controlling stake in regional neighbor Donghai Securities to dominate wealthy Jiangsu province. Weeks later, in April, Orient Securities (3958.HK) unveiled a cash-and-stock deal to acquire Shanghai Securities to create another top-10 titan with an estimated 583 billion yuan in total assets.

In most of these cases, the companies being combined are owned by a single entity, which makes the merger easier. Analysts think that when the dust settles, the current sea of 140-plus legacy brokerages will probably be reduced to fewer than 50 highly capitalized institutions. And differentiated, risk-based regulatory paths will separate a small group of elite global players from smaller locally oriented firms.

Quality over quantity

For investors, what matters most at the end of the day is what this structural transformation means for profitability among the remaining brokerages. Historically, Chinese brokerages relied heavily on transaction fees from speculative retail trading, a model that is highly volatile due to variations in activity between bull and bear markets. The model is also inherently un-strategic because everyone basically offers the same product and very similar prices.

To break this dependence, the mega brokerages like Guotai Haitong are shifting toward higher-margin services like wealth management and fund advisory, targeting the vast pool of capital held by China’s aging population.

Simultaneously, they are retooling their investment banking units away from the real estate and traditional manufacturing sector, building end-to-end ecosystems designed specifically to serve Beijing's priority sectors like advanced semiconductors, AI and clean energy technology.

These newly empowered state champions, armed with fortified balance sheets, are also looking to expand their global presence. Most are using their Hong Kong subsidiaries as primary launchpads to establish wealth management hubs and corporate finance outposts across Southeast Asia, which is home to a large ethnic Chinese population.

Guotai Haitong is set to turbocharge this regional expansion model. Just last month, its board approved a plan to inject 9 billion yuan into its Hong Kong-based primary offshore vehicle, Guotai Junan International. The international unit will use the funds to transform its existing hubs in Hong Kong, Singapore and Vietnam into comprehensive corporate finance and wealth management gateways.

Yet elevating its status to a global investment bank won’t be so easy, as it requires an entirely different corporate DNA than Guotai Haitong currently has. Chinese state-backed brokerages like Guotai Haitong remain tied to institutional structures that prioritize regulatory compliance and national strategic alignment over aggressive financial risk-taking. Reconciling the strict mandates of state-supervised capitalism with the freewheeling, highly competitive realities of global investment banking is an operational challenge that can’t be solved simply by deploying a large amount of capital.

Guotai Haitong shares rallied as much as nearly 7% the day after the positive profit alert, but ended with just a 1% gain. They trade at a lofty price-to-earnings (P/E) ratio of 14, higher than 11 for Citic Securities (6030.HK; 600030.SH), which Guotai Haitong unseated as China’s largest brokerage by assets after its formation through the merger.

Guotai Haitong's blowout first-half shows that growing big can pay off nicely, especially in a highly insular market where a newly emerging group of titans enjoys strong government support. Investors appear to appreciate that, as its valuation shows.

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The bank seized on a local government debt crunch to buy a stake in regional lender Hongta Bank, providing a conduit into China's recession-proof cigarette monopoly

Key Takeaways:

• Citic Bank will acquire 14.5% of Yunnan Hongta Bank, which is closely connected to China’s tobacco monopoly
• The move could give Citic Bank, one of China’s more entrepreneurial national lenders, a conduit into supply chain finance across the country’s vast tobacco ecosystem

By Warren Yang

There’s an old saying that where there’s smoke, there’s fire. In the case of China Citic Bank Corp. Ltd. (0998.HK; 601998.SH), where there’s smoke, there may also be a recession-proof, perpetually flowing wellspring of money.

In a filing with the Hong Kong Stock Exchange last Friday, Citic Bank said it received the green light from the Yunnan bureau of the National Financial Regulatory Administration to acquire a 14.5% stake in regional lender Yunnan Hongta Bank.

On the surface, this small investment looks like a drop in the bucket for a national giant like Citic Bank. The filing doesn’t include a transaction value, which indicates that it’s a small deal that doesn’t require more detailed disclosure. Media reports also confirm it’s a minor transaction — with a heavy discount. Without much information, investors may have trouble understanding what’s behind this move.

Only when viewed against the broader backdrop of debt restructuring by local state-owned enterprises (SOEs) across China, and Hongta Bank’s close ties to China’s tobacco monopoly, does this low-key acquisition start making sense.

Anyone familiar with China’s massive tobacco apparatus knows that Hongta is one of the country's most iconic and historic cigarette brands. That association is no coincidence as Hongta Bank is deeply intertwined with China’s tobacco industry, which is centered in Yunnan province where most of the Chinese crop is grown. Various units of China National Tobacco Corp., the nation’s tobacco monopoly, including Yunnan Hehe (Group) Co. Ltd. and China Tobacco Yunnan, collectively own more than 48% of unlisted Hongta Bank, according to East Money, a financial data aggregator.

This type of equity marriage between banks and the specific industries they lend to is normally frowned upon because of concerns about inappropriate related-party transactions that can raise credit risks. 

But in Hongta Bank’s case, its relationship with China National Tobacco places it comfortably at the center of a lucrative, closed-loop financial ecosystem. Upstream, it treats China National Tobacco’s purchase orders as ironclad collateral. Through its digital platform, Hongta Bank analyzes state assigned-crop quotas and past delivery data to instantly disburse planting loans to tobacco farmers. There are nearly zero risks involved as China National Tobacco routes purchase payments directly back through Hongta to settle the loans.

Downstream, the bank offers a specialized digital lending product that links directly into the China’s cigarette ordering system. When any of the country's 5 million licensed, mom-and-pop tobacco retailers want to restock inventory but lack cash, Hongta Bank instantly approves micro-loans, clearing same-day payments to China National Tobacco.

Recession-proof monopoly

Because China National Tobacco is a strict, recession-proof state monopoly, these transactions are insulated from economic downturns. With its minority stake, Citic Bank won’t have operational control over Hongta Bank. But the asset can give it an entryway into this highly insular tobacco ecosystem and its low-risk financial environment.

For any outside lender, penetrating that system without insider assistance is an uphill battle. In that context, Citic Bank is effectively securing an institutional gateway to China National Tobacco by taking a seat among Hongta Bank’s top shareholders, opening a door to massive financing opportunities.

Furthermore, the partnership can also lead to a highly efficient co-lending model that addresses capital constraints for Hongta Bank. As a regional lender, Hongta Bank is constrained by its balance sheet capacity — it can only lend so much to its huge base of potential borrowers before bumping against regulatory ceilings.

Citic Bank, on the other hand, boasts an asset base that’s nearly 67 times that of Hongta Bank’s. Now, its new investment gives it access to a low-risk tobacco financing ecosystem at a time when deploying capital safely is increasingly difficult due to a slowing Chinese economy. Through this alliance, Hongta Bank can continue to cultivate high-value, low-risk tobacco relationships through its unique industry ties, while Citic Bank can step in to share the capital burden.

Crucially, this arrangement also allows the two banks to bear credit risks proportionally to the amount of capital each commits. In an environment where major commercial lenders are battling compressed interest margins and property-sector risks, this Hongta Bank stake delivers Citic Bank exactly what it needs: a pool of customers heavily insulated from broader macroeconomic cycles.

Reflecting the tobacco industry’s remarkably low-risk environment, Hongta Bank’s nonperforming loan ratio is well below the average for its regional bank peers. But such low risk also comes with some downside, since loans to such reliable borrowers also typically carry low rates, which doesn’t help improve margins. But sacrificing margins for volume and safety can be an attractive proposition.

Fire-sale asset

So, why would anyone sell a chunk of shares in a well-governed, stable regional bank sitting on a literal tobacco goldmine?

To answer that, we need to look at the seller, namely, Kunming Industrial Development Investment Co. Ltd. Hit by cooling regional economic growth and a peaking local government debt cycle, this Kunming municipal entity has faced immense operational and liquidity strains over the past few years, with a wall of maturing domestic and offshore bonds to repay. Desperate to unlock cash and head off any near-term defaults, Kunming Industrial Investment put its Hongta Bank stake up for public auction in April.

The contradiction of Yunnan’s cooling regional economy despite its lucrative tobacco foundation lies in the rigid nature of the tobacco industry. While the state-led tobacco monopoly provides steady tax revenues, it operates on fixed production quotas and cannot expand to rescue the broader economy during an economic downturn.

Instead, the province’s actual growth engine is heavily reliant on real estate land sales that have stalled with the national property slump, and debt-fueled infrastructure spending. This has left local government financing vehicles deeply exposed to a severe liquidity crunch, ultimately forcing municipal governments to liquidate highly stable, passive assets like Hongta Bank shares just to remain solvent.

After a failed initial auction and a subsequent price slash, the Hongta Bank stake finally sold for 981 million yuan ($144 million), according to media reports. This final price tag represents less than half of Hongta Bank's book value per share. In short, Citic Bank swooped in and bought a premium asset at a fire-sale discount.

Citic Bank shares fell after the company’s disclosure. Perhaps this reflects general investor disdain of small regional banks, many of which are currently struggling. But Hongta Bank is profitable and well-capitalized, securely positioned to benefit from China’s tobacco monopoly.

Over time, investors may appreciate this strategic move, which then may boost Citic Bank’s valuation. It trades at a price-to-earnings (P/E) ratio of 4.9, lower than 5.7 for industry leader ICBC (1398.HK; 601389.SH) and also behind the 6.8 for China Merchants Bank (3968.HK), considered another one of the country’s more entrepreneurial national lenders.

Citic Bank may have only acquired a cheap minority stake in Hongta Bank. But the back-door entry it now has into China’s tobacco monopoly may provide handy fuel for its profit growth, leaving potential upside for its stock.

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"EV manufacturers are now vastly more important to the Chinese economy than legacy combustion-engine automakers." – commenting on why Beijing may be reluctant to levy new taxes on electric vehicles

Key Takeaways:

• China's rapid adoption of EVs is unintentionally eroding gasoline tax revenues needed for highway maintenance
• A central government pause on issuance of securities backed by data assets highlights the ongoing struggle to control local government debt

By Doug Young & Rene Vanguestaine

China's centrally planned economy is renowned for its meticulously crafted five-year plans and top-down policy directives. But even the most carefully orchestrated initiatives can spawn unexpected headaches. We're currently seeing this play out in two different arenas that share a common theme of unintended financial consequences. First, China's booming electric vehicle (EV) market is quietly pulling the rug out from under highway maintenance funding. Second, a sudden surge in an unusual new class of asset-backed securities — backed by data — is sparking fears that local governments are finding a new way to mask their debt.

We'll start with the rapid rise of EVs, which now account for more than 60% of new vehicle sales in China. This boom was heavily policy-driven. Over the last decade, Beijing has sought to convince the world it was doing more than anyone else to address climate change. Promoting EV adoption on the demand side was an obvious strategy, supported initially by substantial government subsidies.

However, this success has created an unintended side effect for the thousands of kilometers of non-toll highways China has built over the last three decades. These roads rely heavily on gasoline taxes for maintenance funding. With gasoline consumption coming down, there's suddenly less money available to fix roads. Meanwhile, the electricity powering these new cars is highly regulated, cheap, and lacks equivalent taxation.

We think officials likely knew this situation was coming, but there isn't a clear backup plan to take up the slack. Eventually, the government will have to introduce new taxes, but we believe they'll wait as long as they possibly can. Consumer confidence in China isn't strong right now, and raising costs could be counterproductive. Furthermore, EV manufacturers are now vastly more important to the Chinese economy than legacy combustion-engine automakers.

Taxing electricity across the board seems unlikely, as power prices are a sensitive topic for consumers. Instead, a sensible solution might be an annual tax for the use of an EV, rather than a point-of-sale fee that could dampen demand in the current climate of consumer caution. Until then, the gap in road maintenance funding remains a looming challenge.

Slamming the brakes on data assets

While physical roads face funding shortages, a much more abstract issue is brewing in China's financial markets. Since last year, local governments and companies have been allowed to use their data as an asset with real value to back a new class of asset-backed securities (ABS). Yet, only a year after launching, the central government is suddenly slamming on the brakes.

The core concern here is that local governments are using these data-backed securities as a way to disguise their debt. From a financial standpoint, this raises massive valuation questions. Who determines that a local government's estimate of future revenue streams from a specific dataset is realistic and not highly exaggerated? In the U.S., rating agencies act as independent third-party referees — even if they sometimes do a horrible job. But that independence is lacking here. Given that local governments have a well-demonstrated ability to use off-balance-sheet tricks, investors ought to be highly cautious.

Retail investors might assume that because these ABS are tied to the government, they'll always get their money back. But the central government is rightly concerned that things might go wrong, potentially hurting individuals and disrupting social stability — Beijing's number one priority.

We're highly skeptical about the future of this whole data securitization push. In the West, it's easier to sue businesses, and the legal ownership of data — especially personal information — is a much more sensitive issue. There are some cases in the U.S. where companies have securitized music royalties, patent income, and trademark licensing revenues. But those are much clearer assets. You can look at years or even decades of revenue history for a patent or franchise fee and get a decent sense of where it's headed. The legal environment is stronger, and the historical data provides comfort to investors. China's data securities lack that tested, historical foundation. Whether it's subsidizing an EV boom that inadvertently drains road funds or allowing creative local governments to securitize untested data, it's clear that pushing the boundaries of policy inevitably brings complications that even the best five-year plans struggle to predict.

The online insurance broker’s new technical services business boomed in the first quarter, but soaring user acquisition costs caused its profit to fall

Key Takeaways:

• Waterdrop’s revenue surged 65% in the first quarter, almost entirely driven by a new technical services income category
• The online insurance broker’s expenses also swelled during the quarter, as it spent heavily to boost traffic on its platform

By Warren Yang

Private fintech companies in China need to stay creative to cope with a constantly changing regulatory environment that often undermines their business, as Beijing takes steps to control risk and protect big state-owned companies. Online insurance broker Waterdrop Inc. (WDH.US) is evidently trying that in response to recent regulatory developments, but investors don’t seem impressed.

At first glance, the company's financial results for the first quarter, released last week, seem to show its efforts to cultivate a new business are paying off spectacularly after regulators imposed a cap on commission fees insurance brokers can charge for their services. Its net operating revenue for the quarter jumped about 65% year-over-year to 1.24 billion yuan ($180 million). That strong start to the year, if it continues, could help Waterdrop break a three-year streak of annual revenue declines dating back to 2021.

But Waterdrop’s underlying performance looks far less impressive, which may explain why its stock fell 8.5% on the day of the earnings release, and is now down nearly 40% this year. Almost all of its revenue growth came from a new business line called “technical services.” Revenue from this segment skyrocketed to 421 million yuan in the first quarter from just 9.4 million yuan a year earlier. Without this new income source, the company’s revenue would have grown just 10% in the first quarter.

The company laid the groundwork for the new business in 2024, as it began integrating its AI -based software directly into the back-office systems of its insurance carrier customers while trying to figure out how to monetize these services. The monetization part was tricky because the software integration coincided with a fierce regulatory crackdown on commission fees charged by insurance brokers like Waterdrop. To navigate this, instead of including technology service fees in its usual commissions on standard sales, Waterdrop split them out into a separate "technical services income" category.

So, what exactly are these technical services? To provide them, Waterdrop uses its Waterdrop Digital AI platform, which deploys an army of more than 30 purpose-built AI agents. These specialized digital tools handle everything from underwriting inquiries to automated claims processing, managing more than 1 million customer service interactions per month to streamline operations for its insurer partners.

Like the case with anything involving AI these days, Waterdrop’s technology services sound pretty promising, and company management has been hyping them up.

“On the technology front, we are accelerating our shift toward an AI native company,” CEO Shen Peng said on the company’s earnings call. “These technologies will be progressively applied to the insurance scenario, such as intelligent customer service and claims, improving service quality and efficiency.”

But seasoned investors probably see the new services as something different, basically as an old product in new packaging. The key giveaway is that Waterdrop only provides technology services for insurance policies that it facilitates on its platform. That means fees for the services probably would have previously been included in the company’s standard commissions it charges to insurers. But now they are simply being placed in a different category to skirt regulators’ efforts to eradicate the practice of including disguised technology fees in commissions. In its latest financial statement, the company includes technology service fees in an “insurance-related income” category, which also includes brokerage fees as a separate item.

Regulatory arbitrage

All this means that technology services aren’t truly a new business. Instead, the category’s creation essentially represents a form of arbitrage designed to skirt the new cap on commission rates. Regulators have already warned that brokers cannot simply rebrand excess commissions on sales under categories like "consulting fees," "marketing allowances" or "technical utility costs" to bypass the cap. If Beijing decides that Waterdrop's technology fees are just commissions in disguise, the regulatory axe could quickly fall, wiping out some or all of this fast-growing new revenue category.

Making matters worse, this newly minted technical services revenue stream’s first-quarter result was actually down by double digits from its peak in last year’s fourth quarter. That shows that this potential new goldmine is quite volatile, unlike steadier subscription-based fees for software-as-a-service (SaaS) platforms.

Since Waterdrop’s revenue growth depends heavily on transaction volumes, it has to spend heavily on buying traffic, especially as insurance demand in China is lukewarm these days amid a prolonged economic slowdown. In the first quarter, the company’s total operating costs and expenses ballooned more than 70%, as its sales and marketing expenses more than tripled. Consequently, despite the massive revenue jump, the company’s net profit actually fell about 9% year-over-year to 98.4 million yuan.

Outside its core insurance business, Waterdrop offers crowdfunding services for patients with large medical bills, and it also helps drug companies identify participants for clinical trials. But revenue from these segments is negligible and isn’t growing fast. In fact, fee income from crowdfunding services declined year-on-year in the first quarter.

Waterdrop shares trade at a price-to-earnings (P/E) ratio of just 5, a modest level for a technology-oriented company and far below 12.6 for private digital insurer ZhongAn (6060.HK). This massive valuation gap shows that investors may perceive ZhongAn as a true technology-enabled underwriter that is probably benefiting from the new brokerage commission caps. By comparison, they are treating Waterdrop like a commoditized broker exposed to significant regulatory risks.

Waterdrop can try to be creative to dodge regulatory limitations. But investors seem to want it to do more to take its business model to the next level by reducing its vulnerability to regulatory risks while also cutting costs. Until the company can do that, investors may remain skeptical of any big top-line improvement the company may post.

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The Tiger Brokers operator has been forced to leave its original home market, but numbers show its global expansion isn't strong enough yet to carry the business

Key Takeaways:

• Legacy Mainland China clients still accounted for more than 20% of UP Fintech’s first quarter revenue, despite years of efforts to expand internationally
• Now based in Singapore after relocating from its original home in Beijing, the online brokerage faces a key challenge in appealing to clients with no Chinese ties

By Warren Yang

UP Fintech Holding Ltd. (TIGR.US) has finally put three years of regulatory turbulence in China behind it, but it isn't clear skies for the online brokerage just yet. Now completely severed from its original home market, the company faces a high-stakes race to prove it can grow on foreign soil – especially beyond its core base of users with Chinese backgrounds.

UP Fintech’s latest quarterly results, released last week, are a bit of a mixed bag that show both promising signs and challenges for the company in its new 2.0 era.

Firstly, the elephant in the room. The company was fined 411.2 million yuan ($60 million) by the China Securities Regulatory Commission (CSRC) last month for operating an unlicensed business allowing Mainland-based traders to buy stocks in overseas markets like the U.S. and Hong Kong. This dragged its bottom line into the red, as the company, best known for its Tiger Brokers online trading platform, booked a net loss of $26.9 million in the first quarter.

This financial wound is deep, for sure. But it’s also conclusive, ending several years of uncertainty for the company. With a multi-year existential threat from Chinese regulators now in the past as a fixed, nonrecurring charge, the company can finally move forward without worrying about the potential for more problems on the Mainland.

"We have fully accounted for this amount in our first quarter results,” UP Fintech CFO John Zeng said on the company’s earnings call with analysts, referring to the CSRC fine. “This is a one-time nonrecurring charge and will not have a material impact on our core business and overall financial health."

The CSRS also mandated that UP Fintech and rival Futu (FUTU.US) must wind down their original Mainland businesses. That means the pair now have no choice but to go global.

Originally based in Beijing, UP Fintech started out offering trading services for customers in Mainland China buying U.S.- and Hong Kong-listed stocks. But it now calls Singapore home, and gets a majority of its business from other markets outside the Chinese Mainland.

Living on borrowed time

Even before the CSRC dealt the final blow, both UP Fintech and Futu had been living on borrowed time. The regulator ordered the brokerages to stop registering new domestic clients three years ago while allowing them to maintain existing ones. This gave them some time to accelerate their international expansion, which both had previously begun after earlier trouble signs first emerged.

The pivot has been largely successful, though it was a forced one. At the close of the first quarter of 2026, Mainland retail clients represented just 10% of UP Fintech’s total client assets. Furthermore, management noted that about 90% of its net asset inflows came from outside the Chinese Mainland.

Yet, exiting China completely does create a pretty big vacuum that must be filled. UP Fintech management said Mainland clients accounted for more than 20% of its total revenue in the first quarter, double their percentage of the company’s overall client base. This indicates that Mainland-based customers are more lucrative than those in the company’s overseas markets as they trade more frequently, use more leverage for margin trading and use higher-fee products like options and futures.

UP Fintech’s revenue increased about 26% year-on-year to $155 million in the three months to March. But the removal of contributions from clients in China would have pretty much wiped out all of that top-line growth.

To plug this substantial revenue hole, UP Fintech is accelerating its international expansion, targeting mature economies like its new base in Singapore, as well as Hong Kong, Australia and even the U.S.

Finite niche

Yet the company is still having a bit of an identity problem — can it truly transcend its roots as the operator of a Chinese-language stock trading platform? For years, both UP Fintech and Futu followed the wealth migration of the global Chinese diaspora. But while these demographics are highly profitable and like to trade, they represent a finite niche.

To truly scale into an international heavy hitter capable of rivaling Western low-cost digital brokerages like Robinhood Markets (HOOD.US) and Interactive Brokers (IBKR.US), the two must prove they can acquire retail clients that have no Chinese ties.

Futu recognized this early on. It separated its international identity from its domestic brand by launching "moomoo," a heavily promoted, fully English-native app backed by aggressive marketing campaigns.

Moomoo has even begun pushing the boundaries of its offerings. Just last week, it announced a partnership with Kalshi to introduce features that allow U.S. users to trade on prediction markets, which include things like election outcomes and macro-economic data. While this may look like a slightly desperate attempt to compete in a crowded market, it highlights Futu’s willingness to experiment aggressively to appeal to mainstream U.S. investors

UP Fintech, by contrast, has largely kept its international operations under its core "Tiger Trade" banner. While its app is available in a fully English version, its marketing and product features have historically leaned on its strength in global Chinese wealth centers.

The company is trying to move past that, however, with some notable achievements. For one, in the U.S., it pulled off an impressive 40% quarter-over-quarter increase in client assets in the first quarter, as well as double-digit sequential growth in Australia and New Zealand. But that comes with a cost. UP Fintech’s operating expenses jumped 33% year-over-year in the first quarter, outpacing its revenue growth, in large part because of marketing spending.

In addition to chasing retail investors, UP Fintech is targeting business customers. In the first quarter, it added 42 new employee stock ownership plan (ESOP) corporate clients, bringing its total institutional roster to 790. Moreover, its investment banking division helped to underwrite 10 Hong Kong IPOs during the quarter.

But all those positive signals failed to impress investors, many still worried about its eviction from Mainland China. Its shares dropped nearly 4% on the day of the results announcement, and the stock is now down about 20% from where it traded before the CSRC’s decision. The stock trades at a price-to-sales (P/S) ratio of about 1.4, a far cry from 18 for Robinhood and even the 3.6 for Interactive Brokers. And Webull (BULL.US), which similarly targets traders with Chinese backgrounds, also trades at a much higher ratio of 5.3.

UP Fintech’s progress in its international expansion campaign so far is promising. But to take its global game to the next level and win over investors, it may need to deliver more results that convincingly show it can find business outside its original strength targeting traders with Chinese backgrounds.

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The company paid off most of its long-term debt by selling down its bitcoin treasury, as it moves ahead with its new focus on modular high-performance computing for AI clients

Key Takeaways:

• Cango paid off most of its long-term debt and sold most of its bitcoin holdings in the first quarter, dramatically reducing its assets and liabilities
• Following the balance sheet cleanup, the company is moving ahead with a pilot project offering high-performance computing services for small- and medium-size businesses

By Doug Young

What do you do after a major storm passes? If your name is Cango Inc. (CANG.US), the answer is that you engage in some serious housecleaning. That was the big story in Cango’s first-quarter financial report, released on Sunday, which was a sort of “Part Two” of a stormy tale that dominated its report from the previous quarter.

The company spent much of its life as a China-based car specialist, before sharply shifting gears at the end of 2024 to focus on bitcoin mining. That was fine for about a year, as bitcoin soared to record highs and Cango built up a huge treasury of the cryptocurrency. But then bitcoin crashed starting last October, prompting Cango to accelerate a previously announced shift into the operation of high-performance computing (HPC) centers that can be used to host power-hungry AI applications.

The storm around Cango crested at the start of this year, when it abruptly sold down more than half of its bitcoin holdings and used the cash to shore up its balance sheet. Now, the company’s latest report for the three months to March shows it has continued to sell down its bitcoin holdings. It also continues to accelerate its drive into HPC centers, which share many qualities with both bitcoin mining centers and more conventional data centers.

In that process, the company has cleaned up its balance sheet considerably, ending the first quarter with just $30.6 million in long-term debt, down dramatically from $557.6 million just three months earlier, according to its latest report. The company’s cash also shrank to just $7.2 million from $41.2 million over that time, though Cango used proceeds from its own bitcoin sales to pay down most of its debt.

After initially adhering to a “mine and hold” strategy, Cango abruptly started selling down its bitcoin holdings in February after the price of the cryptocurrency fell by about half between last October and this February. The drop was especially painful for miners, because it suddenly made the cost of minting each bitcoin more expensive than the actual value of the currency – meaning they were losing money on every coin they produced.

Cango had 7,474.6 bitcoins in its treasury at the end of January, but then suddenly sold more than half of those over two days in February, leaving it with just 3,313.4 by the end of that month. It continued to sell down its holdings, bringing its reserve to just 1,026 bitcoins by the end of March. All the while, it has continued to keep mining new bitcoins, though at a slower rate as it retires older, less efficient mining machines.

The bottom line in Cango’s latest housecleaning story is that the company is on much sounder financial footing than it was at the start of this year. But it has also shrunk considerably as it sold off the bitcoins that were its key asset and paid down the debt that was weighing down its balance sheet. At the end of March, the company’s total assets had shrunk to $381 million, down by roughly two-thirds from $1.13 billion three months earlier. But its net liabilities also dropped dramatically to just $170 million from a previous $736 million over that period.

Starting from scratch

With its balance sheet now much healthier, Cango is setting its sights on developing its HPC business, targeting small- and medium businesses developing and operating their own AI applications. Such demand is likely to grow rapidly in the years ahead, as the focus for AI moves from power-hungry large language models (LLMs) like ChatGPT to more company- and industry-specific agentic applications that require less computing and power resources.

Cango is aiming to convert many of its existing bitcoin mining facilities spread across 40 sites on three continents into a new generation of HPC centers. It is starting by converting its most promising nodes, with an eventual aim of building an extensive flexible, modular solution that can be used by a wide range of miners, as well as small- to medium-sized enterprise customers requiring HPC services for AI and other computing-intensive applications.

To accomplish that transformation, the company set up EcoHash, based in the U.S. state of Texas, earlier this year and recruited a senior technology executive from virtual meetings giant Zoom Communications to lead the technical development. On its latest earnings call, the company said it is currently retrofitting a mining center it owns in the U.S. state of Georgia, which will become a pilot for its modular, high-density computing model.

“Our objective with this modular design is to evaluate whether modular deployment can reduce cost and improve operational efficiency relative to traditional data center infrastructure,” CEO Paul Yu said on the call. “By leveraging our global energy network and operational expertise, we are well-positioned to enhance efficiency, capture emerging AI compute opportunities, and drive sustainable long-term value.”

At the same time, Cango isn’t giving up on its bitcoin mining operation, but instead is refining it to run more efficiently. A big part of that involves selling off some of its older S19 miners and replacing them with newer, more cost-effective S21 machines. As that happens, the company’s ratio of S19-to-S21 models stood at 8:2 by the end of May, improving its cost structure.

Most of the company’s $102 million in first-quarter revenue came from its bitcoin mining operation, which minted 1,266 bitcoins during the quarter, averaging 422 per month. The company minted another 230.04 bitcoins in April, showing its production has stabilized as it operates at a hash rate of about 37 EH/s. As it focuses on efficiency, its average cash cost per bitcoin mined fell 9% quarter-on-quarter to $76,928 in the first quarter, which is still slightly higher than the current market price for bitcoins.

On its bottom line, Cango reported a $261.1 million loss from continuing operations during the first quarter, marking a slight improvement from a $285 million loss in the previous quarter at the height of its storm. Much of the losses came from non-cash charges, most notably a $151.8 million loss from changes in fair value of receivable for its bitcoin collateral, as well as a $49 million impairment loss related to its mining machines.

At the end of the day, Cango has emerged from its storm and subsequent housecleaning as a smaller but much leaner company with relatively little debt and a sizable cash-generating engine from its bitcoin operations. Now, it needs to quickly move ahead with its HPC initiative to draw investors back to its stock, which has taken a beating since the bitcoin downturn began.

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The company’s shares fell nearly 25% over four days as investors worried about potential exposure to problems surrounding a major wealth management product issued by its parent

Key Takeaways:

• CreditEase has reportedly suspended principal and interest distributions on $4.4 billion of wealth management products issued by its Heritvest unit
• Yiren Digital swiftly issued a statement emphasizing its operational independence from CreditEase, which is its parent

By Warren Yang

For private financial companies in China, it’s painfully clear that any misstep can be costly as regulators closely watch their every move.

The latest casualty is CreditEase, an early online finance pioneer and parent of New York-listed Yiren Digital Ltd. (YRD.US). CreditEase has abruptly suspended both principal and interest distributions for 30 billion yuan ($4.4 billion) of fixed-income wealth management products issued by its Heritvest subsidiary, according to media reports last week.

Regulators appeared to act swiftly in the matter. People familiar with the situation told financial media Caixin that senior executives at CreditEase and Heritvest have been barred from leaving China and ordered to explain what’s going on to Beijing’s local financial regulators. The report didn’t state what exactly raised regulators’ concerns.

In China, wealth management products are a primary vehicle for allowing traditional banks and private firms to package high-yield, off-balance-sheet loans into fixed-income investments. This kind of murky practice is a key part of the Chinese version of “shadow banking,” and essentially allows companies to make risky products look safer. The products are popular among mom-and-pop investors seeking high returns.

But retail investors often perceive these instruments to be as safe as bank deposits and don’t fully understand their risks — until the high-risk underlying loans go sour. The result is that such products sometimes default, leaving thousands of people stranded without their promised returns and potentially forcing institutions that sold them into bankruptcy.

In an effort to defuse such risks, Chinese regulators have aggressively tightened oversight on the shadow banking sector by banning implicit guarantees and forcing platforms to unwind high-risk wealth management products. Yet the CreditEase episode has revived deep-seated anxieties around opaque risks still lingering within China’s vast shadow banking space.

Predictably, the shockwaves instantly crossed the ocean to New York, where Yiren Digital found itself caught in the line of fire. The two entities supposedly operate independently. But investors were quick to treat CreditEase’s problem as Yiren Digital’s, sending the latter’s share down by about 25% over four trading days.

Damage control

Last Tuesday, Yiren Digital rushed to issue a damage-control statement. The company tried to clear the air by saying that CreditEase’s trouble is entirely unrelated to its own day-to-day operations. The company went so far as to deny the authenticity of an open letter that was attributed to founder Tang Ning and circulated among panicking investors to announce the payment halt, according to the Caixin report.

So why did investors dump Yiren Digital shares despite the company’s attempt to distance itself from CreditEase? Because in the tightly knit world of private finance in China, operational independence is often an illusion. In fact, Caixin cited industry insiders and a former employee saying that Heritvest’s wealth management products were widely suspected of funding loans facilitated by Yiren Digital. Also, Yiren Digital acknowledged that CreditEase has begun winding down the affected products and has reported the move to financial watchdogs, according to the Caixin the report.

In its statement, Yiren Digital emphasized its operational independence by saying it makes transactions with its controlling shareholder and its affiliates “on an arm's-length basis” and discloses them in filings.

Yer figuring out whether Yiren Digital has any wealth management product ties with CreditEase through its public disclosures is no easy feat. As part of a restructuring in 2019, Yiren took over online wealth management operations from CreditEast and its affiliates. But it’s not clear what, if any, wealth management products are handled by the business. In its annual reports, Yiren Digital discloses related party transactions with what appear to be wealth management units of CreditEase and Heritvest for customer acquisition and referral services.

Given this lack of clarity, it’s understandable why investors might take anything Yiren Digital says involving sensitive matters with a grain of salt.

Earlier crackdown

CreditEase’s latest run-in with authorities follows on the heels of a regulatory crackdown that hit Yiren Digital earlier this year when Beijing enforced a 24% ceiling for consumer loan interest rates. Previously, platforms like Yiren thrived in a highly lucrative operational gray zone, leveraging hidden processing and facilitation fees to push effective borrowing rates closer to 36%. The new enforcement regime permanently stripped away those extra charges, removing a big revenue generator for companies like Yiren Digital.

Yiren Digital isn’t the only private fintech finding life difficult these days. Just two weeks ago, the China Securities Regulatory Commission (CSRC) proposed big fines for online stock brokerages, Futu (FUTU.US) and UP Fintech (TIGR.US) for running unlicensed cross-border securities operations within China and ordered them to wind down their original Mainland business.

During the boom years of the mid-2010s, platforms like CreditEase were celebrated as vital financing agents. They specialized in lending to individual consumers and small businesses, filling credit voids left by conservative, state-owned banks that traditionally preferred lending to state-owned enterprises with collateral to offer in case of defaults.

But the group’s rapid growth resulted in a quick buildup of risks within China’s financial system, with the potential to send shockwaves through the economy. That led regulators to start coming down hard on them in the late 2010s, and the crackdown has pretty much continued steadily ever since.

The interest rate cap, coupled with a slowing economy in China, have already created a tough environment for Yiren Digital. Its revenue slipped last year, and it also booked massive provisions as credit risks rose. As a result, its net profit nearly evaporated for the year, plunging more than 96%. Its shares now trade at a miniscule price-to-sales (P/S) ratio of just 0.14, well below the 1 for New York-listed shares of rival Qfin (QFIN.US, 3660.HK), which isn’t particularly inspiring either. 

The unraveling of CreditEase’s wealth management product represents a final, painful reckoning for one of the few remaining survivors in China’s rapidly shriveling private loan sector. For investors, the takeaway is rather clear — buying shares in private Chinese fintech companies means fighting a powerful regulatory tide that shows no signs of easing. As long as regulators view private fintech firms as threats to financial stability, they will remain trapped in a hostile environment where mere survival is far from guaranteed.

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"In China it's all about control, especially when it comes to capital."

Key Takeaways:

• China's move to push out cross-border stock brokers underscores the state's desire to control capital allocation and benefit state-owned enterprises
• Wendy's ambitious plan to open 1,000 stores in China faces steep hurdles due to fierce competition and an increasing consumer preference for domestic brands

By Doug Young & Rene Vanguestaine

Recent events highlight two narratives about navigating the Chinese market. On one hand, we're seeing a final crackdown on cross-border trading by Chinese retail stock buyers — a move that reinforces Beijing's tight grip on capital movement. On the other, we're watching a major U.S. fast-food giant attempt to enter the Mainland market decades after its peers. Both developments illustrate the intricate dance of regulation, timing, and local execution required to survive in China today.

We'll start with some big news for Chinese investors who like to buy stocks in offshore markets like the U.S., Hong Kong, Japan and Singapore. China's securities regulator has formally fined the country's two largest cross-border stockbrokers, Futu (FUTU.US) and UP Fintech (TIGR.US), for operating without brokerage licenses. More importantly, the pair must wind down their China business entirely, leaving Chinese stock buyers with highly limited options for overseas trading.

This move wasn't completely out of the blue. Three years ago, the China Securities Regulatory Commission stated the pair were operating illegally and banned them from accepting new clients in China, though it allowed them to keep their existing accounts. Now, even those legacy accounts are coming to an end. It's a regulatory bombshell that effectively ends their domestic operations.

Some observers might've hoped the regulator would offer a path to legal licensing, but we aren't terribly surprised by this outcome. Over the last 15 years, there are numerous cases across different industries where Chinese regulators have taken a similar stepped approach — initial warnings followed by a gradual squeeze — all aimed at reining in what the government considers unruly behavior. It's a method to bring sectors firmly under state control.

The market reaction was swift, with shares of both companies losing about a quarter of their value following the decision. This sell-off might seem disproportionate, considering both firms have spent the last three years diversifying. Today, they only get about 10% to 15% of their business from China. But the reality is they're now completely shut out of their home market, and their overseas growth has so far been mostly limited to ethnic Chinese communities, which puts a ceiling on their potential customer base.

If we look at this with clear eyes, it resembles earlier crackdowns on private financial companies, such as online lenders. While those early crackdowns were partly driven by massive fraud, state-owned banks also complained about unfair competition. In this current crackdown on fintech brokerages, it's really about capital allocation. The Chinese government wants to ensure that capital from domestic institutions and individual investors is directed toward the national economy and state security. The inevitable beneficiaries here are state-owned brokerages like Citic Securities (600030.SH) and Guotai Junan (601211.SH). Ultimately, it's all about control.

A late bite at the fast-food table

Shifting gears, we're also looking at the latest Western brand trying to crack the Chinese market. In a somewhat low-key manner during its recent earnings call, Wendy's (WEN.US) unveiled a plan to finally bring its brand to China. The company didn't provide much detail, simply stating it signed an agreement with a local franchise partner — described as a large restaurant operator with decades of experience. True to the industry's usual lofty style, they announced a goal of opening 1,000 restaurants in the market within a decade.

Our immediate question is: Why now? KFC (YUMC.US; 9987.HK) and McDonald's (MCD.US) have been operating in China for over three decades. Starbucks (SBUX.US) is approaching its 30-year anniversary there. Given the immense head start of these entrenched competitors, why bother?

Wendy's has been struggling in the U.S. for a while, making this move look like a desperate search for growth avenues while its domestic business faces serious challenges. The fact that the announcement was so low-key suggests the C-suite isn't entirely confident about the outcome. Other Western chains like Burger King (QSR.US), Popeyes (QSR.US), and Tim Hortons (THCH.US) have tried and faced significant struggles.

When a Western brand enters China's restaurant sector today, success hinges almost entirely on the local partner and execution. We don't have particular knowledge of Wendy's chosen partner, but their responsibilities — understanding the market, pricing products appropriately, and deciding where to compete — will make or break this venture.

Furthermore, this comes at a very tough time. We've seen a noticeable repositioning of Chinese consumer appetites, shifting away from foreign brands in favor of domestic ones across many sectors, including food and beverage. Even a giant like Starbucks has found itself struggling against local competitors like Luckin Coffee (LKNCY.US). The 1,000-store goal could rely heavily on a franchise model. In China, there're no shortages of individuals looking to get rich quickly, so attracting a first batch of franchisees might work well, enabling rapid initial growth. The real test is sustainability — whether the economics work out and if franchisees can financially afford to stick around. We're a bit skeptical of this ambitious target, but we'll certainly keep an eye out and maybe even try one of their burgers when they finally open their doors.

Hefty penalties from China's securities regulator for operating without necessary licenses remove a long-running overhang for the online brokerages

Key Takeaways:

• Futu and UP Fintech have been fined a combined $331 million for offering unlicensed cross-border stock trading services for Chinese customers
• While the companies will have to wind down their original China services, the removal of a major regulatory overhang will allow them to focus on their international business

By Warren Yang

For years, regulatory uncertainty in their original China market has hung over Futu Holdings Ltd. (FUTU.US) and UP Fintech Holding Ltd. (TIGR.US) like a menacing cloud. Now, the storm has finally broken for the pair of brokerages that started out offering cross-border stock trading services for Chinese investors.

The aftermath of the storm wasn’t pretty, costing both companies hefty sums as they were ordered to wind down their original China business. But there’s also a bright side to the story, as Futu and UP Fintech can finally move on, focusing on international expansion efforts that were born out of necessity but are paying off nicely.

Last Friday, Futu and UP Fintech disclosed that the China Securities Regulatory Commission (CSRC) hit them with substantial penalties for running unlicensed cross-border securities operations within China. For Futu, the regulator proposed a fine and confiscation of illegal gains, which together total 1.85 billion yuan ($271 million). The company’s founder and CEO, Hua Li, who also uses the English name Leaf, also faces a personal fine. UP Fintech must cough up 411.2 million yuan, with a similar additional reprimand for its CEO, Wu Tianhua.

The immediate market reaction was swift and brutal, with shares in both companies plunging more than 25% following their announcements. It’s not hard to see why investors punished them. At first glance, the CSRC penalties alone look like a heavy financial blow to the brokerages, amounting to more than 9% of their annual revenue. Both companies will also lose a portion of their revenue bases as they shut their remaining China-based operations.

But the regulator’s action brings closure to a saga that has been lingering for years, clearing the path for both companies to move forward. Furthermore, some may argue the Chinese authorities have been surprisingly lenient in their handling of the case.

Trouble signs

The first trouble sign came in 2021, when an official from China’s central bank mentioned that unlicensed online brokerages were operating illegally, without specifically naming Futu and UP Fintech, the latter better known in China as Tiger Brokers. The CSRC weighed in with a similar opinion in late 2022, and ordered the pair to stop accepting new Mainland clients but stopped short of demanding an immediate shutdown of existing accounts. While harsh, that step effectively gave Futu and UP Fintech a multi-year grace period for shutting their cross-border trading services for China-based customers.

That approach gave Futu and UP Fintech plenty of time to diversify away from the Chinese market. They have aggressively pivoted to other markets, securing licenses and building massive user bases in international hubs like Singapore and Hong Kong. As a result, China accounted for just 13% of Futu’s total funded accounts at the end of the first quarter and about 10% of UP Fintech’s total client assets at the end of 2025.

Had Beijing forced an immediate shutdown in 2021 or 2022, the companies could well have collapsed. Instead, with more than three years to figure out a “Plan B,” they are flourishing now. Revenue for Futu, now based in Hong Kong, surged nearly 68% last year to HK$22.8 billion ($2.94 billion), and its net profit doubled to HK$11.3 billion, fueled by new customer additions in Hong Kong and Malaysia. UP Fintech’s revenue jumped 56% to $612.1 million. Its net profit for the year soared by an even stronger 181% to $170.9 million on the back of explosive user growth in Australia, New Zealand and Hong Kong and client asset expansion in Singapore, which is now the company’s home.

The CSRC penalties will hurt both companies in the short term, but the pain will be a one-time hit and won’t break them. Instead, with the removal of the agonizing, multi-year regulatory overhang, Futu and UP Fintech can speed up their international expansion without worrying about any Beijing action holding them back.

State-directed consolidation

The removal of two of the few private-sector players from China’s brokerage landscape comes as the industry undergoes a state-directed consolidation. In the latest step, Orient Securities (3958.HK) finalized a plan to merge with Shanghai Securities, both of which are backed by the Shanghai government. That marriage came not long after two even larger players, Guotai Junan Securities and Haitong Securities, merged to form Guotai Haitong Securities (2611.HK).

Futu and UP Fintech never offered trading in Shanghai- and Shenzhen-listed stocks, like all of the other Chinese brokerages. Instead, they tried to carve out a niche by initially offering trading in U.S. and Hong Kong stocks for China-based investors, before expanding to offering stocks from other global markets as well.

Institutions and wealthy investors in China have a strong appetite for global diversification, and Beijing is addressing this on its own terms. Regulators have recently expanded outbound investment quotas via the Qualified Domestic Institutional Investor (QDII) program by $5.3 billion, steering more than half of that newly approved offshore trading capacity directly to domestic state-owned securities firms and fund managers. This will enable the government to satisfy domestic demand for foreign assets while making sure those investment activities are safely funneled through state-monitored channels.

After establishing themselves as legitimate international forces, Futu and UP Fintech probably have no problem leaving the Chinese market to state-owned institutions. And with the regulatory ghost that has haunted them for years finally laid to rest, investors can stop valuing these companies as endangered Chinese entities and start reassessing them as lean, global digital brokerages.

After the latest selloff, Futu shares trade at a price-to-earnings (P/E) ratio of 8.8, more or less on par with 8 for Orient Securities and higher than 6.6 for Guotai Haitong Securities. The multiple for UP fintech is lower, at 4.8. Notably, all of those multiples are well below the 36 for both U.S. discount brokerages Robinhood Markets (HOOD.US) and Interactive Brokers (IBKR.US). That seems to show that Futu and UP Fintech shares could have some upside if they can keep posting strong growth even after the loss of their China business.

After all, it seems that not all penalties are the same. For Futu and UP Fintech, the CSRC action led to wild turbulence for their share prices. But after weathering that, the companies may be on a much more stable growth trajectory.

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Once built around crypto trading, the company is accelerating its push into the stablecoin and asset management businesses as it chases a place in the next wave of digital finance

Key Takeaways:

• Bitfire lost up to HK$245 million in the six months through March, nearly 19 times more than its loss a year earlier
• The company is accelerating its expansion into the stablecoin and asset management businesses

By Lee Shih Ta

Excitement is building in Hong Kong’s virtual asset realm as the city kicks off its use of stablecoins, marking a first step in its growing embrace of virtual currencies. But into that atmosphere of excitement, Bitfire Group Holdings Ltd. (1611.HK) distracted investors from its own aspirations in the space with a worrisome profit warning. The company offers virtual asset trading, asset custody and fintech services, positioning itself across regulated digital asset markets in Hong Kong and Japan.

According to the profit warning, issued last week, Bitfire said it expects to record a net loss of up to HK$245 million ($31.28 million) for the six months through March, the first half of its fiscal year. That represents a nearly 19-fold increase from a loss of about HK$12.3 million the company reported a year earlier.

Bitfire blamed the ballooning red ink on a value loss of approximately HK$152 million on its held crypto assets, reflecting weak market conditions. A more noteworthy factor, however, may be rising expenses, with the company’s spending on development and customer services up about HK$69.6 million, while R&D expenses rose by roughly HK$13.2 million.

The company said the rising expenses owed mainly to its heavier spending on professional and customer service capabilities, while R&D spending was tied to the development of technology infrastructure products and services. The spending blitz suggests Bitfire is moving beyond simply operating a traditional crypto trading platform toward becoming a fintech platform focused more heavily on technology, compliance and blockchain-related services.

Many trading platforms were able to generate strong profits during the crypto bull market of 2021 simply by taking advantage of big price swings, leverage and heavy retail trading. At the time, Bitfire rapidly expanded its Web3 operations across Hong Kong and Japan, as well as in markets tied to crypto assets, nonfungible tokens (NFTs) and on-chain investments. But as regulators in the U.S., Hong Kong, Japan and Singapore gradually tightened their oversight, the industry began shifting toward greater standardization and a broader range of institutional services. Platforms are now competing not only on trading systems, but also on anti-money laundering capabilities, asset custody and cross-border payment services, and on regulatory compliance as well.

Compliance takes center stage

This April, the Hong Kong Monetary Authority officially awarded its first batch of stablecoin issuer licenses, with approval granted only to local banking giants HSBC and Standard Chartered Bank. Both of those already hold note-issuing bank status in Hong Kong, which allows them to issue Hong Kong dollar notes, unlike most countries where the issue of paper currency is handled by the government.

The extremely low number of new stablecoin licenses — with only two approvals out of 36 applicants — suggests Hong Kong is trying to reposition stablecoins from tools traditionally associated with speculation and crypto trading into part of the next generation of its financial infrastructure.

The global stablecoin market has now surpassed $300 billion, with the two dominant U.S. dollar-backed stablecoins, USDT and USDC, continuing to lead the sector. Such coins take their name from the fact that they are backed by real-world assets, such as U.S. dollars, making them more stable than other virtual currencies with no such backing. Transaction volumes for stablecoins have already exceeded some traditional payment networks, while Hong Kong’s stablecoin ambitions are aimed more at cross-border payments, digital assets and settlement applications.

Whether Hong Kong dollar-backed stablecoins can eventually be integrated into the local financial system will be a critical issue. Against this backdrop, Bitfire’s increased investment over the past six months appears to reflect a strategic calculation centered on building up its compliance and technology capabilities for the coming stablecoin era.

Bitfire CEO Weng Xiaoqi recently said publicly that stablecoin-related demand is rising rapidly. The company plans to establish its own stablecoin trading and asset management businesses within the next six months, while also exploring opportunities linked to clearing licenses and the broader stablecoin ecosystem. It is attempting to position itself within Hong Kong’s regulated stablecoin ecosystem by focusing on trading and financial services.

That also means Bitfire’s future competition with licensed Hong Kong virtual asset traders such as HashKey (3887.HK) and OSL Group (0863.HK) will no longer be limited to traditional virtual asset trading, but will extend into emerging areas including stablecoins, real-world assets (RWA), institutional services and digital financial infrastructure.

Among those companies, OSL has been expanding into institutional custody and compliant trading services in recent years, while HashKey, backed by the Wanxiang Group ecosystem, has accelerated its expansion into retail trading, asset management and RWA-related businesses. Bitfire is smaller in scale, but is trying to simultaneously position itself across regulated digital asset markets in both Hong Kong and Japan.

Notably, Bitfire announced last month that well-known economist Fu Peng had joined the company, sending its shares up 22% in a single day on the news. Fu has long focused on global liquidity and macroeconomic research, with a background rooted more in traditional finance and capital markets rather than crypto industry circles. Investors saw his appointment as a sign that the company is accelerating its shift toward a model offering a broader array of standardized, financial services.

Bitfire’s shares are up about 40% over the past year, though they were even higher and have retreated roughly 32.4% over the last six months. That highlights the continued volatility around such stocks, in line with similar volatility for cryptocurrencies and virtual assets in general. From a price-to-book (P/B) perspective, Bitfire currently trades at around 2.57 times, below HashKey’s 3.99 times and OSL’s approximately 3.41 times, reflecting a more cautious market view toward the company.

Compared with companies such as HashKey and OSL, which established clearer positions as licensed trading platforms in Hong Kong at an earlier stage, Bitfire remains relatively limited in both its scale and market influence.

The market’s valuation framework for Web3 companies is changing. As stablecoins, RWAs and compliant payment systems increasingly become the core of this evolving industry, investors are placing greater emphasis on things like licenses, a company’s institutional client book, clearing capabilities and financial partnerships. For Bitfire, the real question may not be its short-term losses, but whether it can successfully establish a position as a serious player offering trading, liquidity and institutional services in Hong Kong’s emerging stablecoin and digital finance realm.

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The financial services company will partner with two academic institutions in one of the few filings related to its business activity since its stock crashed last July

Key Takeaways:

• Baiwang said it will collaborate with two Beijing-based scientific institutes on research in emerging areas involving data and AI agents
• The digital tax services provider has provided few updates on its business since its stock crashed more than 70% last July, just a year after its 2024 IPO

By Warren Yang

When a company announces a partnership with an academic institution, the market usually responds with a collective yawn. That was the case last Friday when Baiwang Co. Ltd. (6657.HK) said it signed a collaborative agreement with two academic institutes for joint R&D. That’s not the kind of news that typically gets investors excited about a company, especially one whose stock has lost more than two-thirds of its value since its IPO less than two years ago.

The collaboration will see Baiwang work with Beijing Zhongguancun Academy and the Zhongguancun Institute of Artificial Intelligence, both located in Beijing’s high-tech science district, on research in emerging areas involving data and AI agents. Such foundational work is certainly important for any company with technology at its core, which is the case for Baiwang, a provider of enterprise digitalization services, and processer of cloud-based digital tax and financial transaction data.

But the disclosure feels more like a quiet reminder to the investment community that the company still exists rather than any major news. It is Baiwang’s first filing related to an actual business activity since last June, when it inked a partnership with AI company Phancy Group (6682.HK), which at that time was known as Fourth Paradigm.

Not surprisingly, Baiwang’s stock barely moved the day after the latest announcement, ending the session unchanged on thin trading volume.

In layman’s terms, Baiwang basically helps companies manage their electronic invoices and keep track of supply-chain settlements. Nowadays, companies offering such mundane services often feel compelled to dress up their corporate descriptions to attract investors. Leading up to its 2024 IPO, Baiwang billed itself as an innovative company behind "AI concept” products, touting that the sheer volume of financial transactions it handles could be mined using AI to deliver predictive credit analytics, digital precision marketing and fraud detection.

Investors love good tech stories like the one told by Baiwang, whose name means “100 Aspirations,” reflecting the high expectations it created for itself. Long before its public debut, the company drew backing from high-profile investors like e-commerce titan Alibaba. Such big names helped Baiwang debut on Hong Kong’s bourse at a premium valuation in July 2024.

For the first year of its public life, Baiwang’s narrative held, at least based on its stock price. Its shares cruised comfortably, insulated by optimism that surrounded businesses with digitalization themes. But then the stock suddenly collapsed last July. The company later reported in August that it not only achieved revenue growth in the first half of last year, but also swung to a net profit from a loss. But even that didn’t do much to prop up its suddenly spurned shares.

The crash was most likely caused by the expiration of a one-year lockup period for shares held by pre-IPO investors. Baiwang’s one-year listing anniversary last July 8 marked a “witching hour” for the company, as a large volume of its shares that were previously locked up suddenly became available for trading. And when the dam broke, the market was flooded with shares. Trading in the stock surged, with volume on July 10 more than 36 times the figure on July 8, the last day before the lockup ended.

The selloff sent the company’s stock into a freefall it has never recovered from. The shares are now down more than 70% from a peak of HK$42.45 just days before the end of the lockup. In a way, it’s a no-brainer why Baiwang has fallen out of investor favor. The dumping of shares by its institutional backers represents a major lack of confidence vote in the company’s future. That’s left many ordinary retail investors thinking: If the big names have cashed out, then why should we stay in?

Uninspired bottom line

The underlying problem exposed by Baiwang’s great July crash is a common issue for many AI-related companies that generate healthy hype but fail to translate that into equally healthy profits. This is because there is a massive chasm between developing fancy high-tech products and selling them profitably.

Baiwang is no exception, though its financial performance is improving. Its revenue increased about 11% to 729 million yuan ($107 million) last year, and its annual net loss narrowed substantially to just 10 million yuan from 203 million yuan in 2024.

Impressively, the company generated 211 million yuan in revenue last year from a new AI agent business that it only started in March that year. Starting with a virtual tax assistant, the company rolled out two other AI-powered tools that can handle data-driven marketing, risk control and strategic analysis. 

Baiwang was able to scale these new products so quickly because it used a vast amount of data it already owned and sold the products to existing customers as upgrades. The AI agents are allowing the company to phase out low-margin data-driven marketing services. But the gross profit margin for the AI agent business, at about 26%, is less than half of that for its core software-as-a-service (SaaS) operations.

This highlights margin pressures that are plaguing AI-dependent enterprises, partly because of heavy costs for high-performance software and use of the models that power AI agents. Baiwang’s competitors like Chanjet Information Technology (1588.HK), which focuses heavily on cloud-based accounting SaaS for small enterprises, face a similar uphill battle trying to scale their AI agents without hurting margins.

Even after its shares crashed last year, Baiwang still trades at a relatively high – some might say realistic – price-to-sales (P/S) ratio of 3.5, ahead of the 1.4 for Chanjet.

Baiwang is doing some nice things, but it’s not quite a flashy innovator that investors may have hoped for. To inject new life into its shares, it may need to announce more pragmatic business developments to show it’s staying at the forefront of the fast-evolving AI curve, rather than trying to fall back on less exciting academic partnerships.

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Once known for its Texas Hold’em games, the company is repositioning itself as a Hong Kong-listed bitcoin play through its push into Web3 gaming

Key Takeaways:

• Boyaa Interactive said its first-quarter loss more than doubled year-on-year, mainly due to a decline in bitcoin prices
• Excluding changes in the value of its bitcoin holdings, the company said its core profit for the quarter rose between 85% and 90%

By Lee Shih Ta

Boyaa Interactive International Ltd. (0434.HK) has transformed over the last two years, increasingly seen as a “bitcoin concept stock” as it drifts from its original core gaming business. As its bitcoin holdings grow, the gaming veteran’s earnings have become closely tied to price swings for the notoriously volatile cryptocurrency. But the company may be pursuing ambitions beyond simply stockpiling bitcoin.

Boyaa rose to prominence through its Texas Hold’em games before being hit by a regulatory crackdown on card and board games in China. Over the last two years, the company has attracted growing investor attention for its move into bitcoin. A sharp rise for the cryptocurrency in 2024 brought Boyaa HK$948 million ($121 million) in gains that year, turbocharging its annual profit to HK$969 million. Investors even viewed Boyaa as a Hong Kong edition of bitcoin treasury company Strategy Inc. (MSTR.US) at one point, sending the Chinese company’s shares surging in tandem with Web3 and other bitcoin plays.

But as bitcoin prices retreated, Boyaa recorded HK$411 million in losses from changes in the value of its holdings last year, sending it into the red with a net loss of HK$239 million. The bleeding is continuing this year, with the company warning last week that its loss ballooned by 110% to 120% year-on-year in the first quarter, as weak bitcoin prices continued to wreak havoc on its balance sheet. That said, excluding the digital asset value changes, the company’s profit for the quarter actually rose by 85% to 90% year-on-year.

Boyaa held 4,092 bitcoins at the end of last year, which it acquired at a total cost of about $279 million, implying an average of roughly $68,000 per bitcoin. According to the company, these bitcoin holdings are not merely investments, but are gradually being parlayed for use in Web3 gaming projects.

In its 2025 annual report, Boyaa for the first time formally outlined a “three-in-one” strategy centered on “gaming applications, ecosystem development, and value storage.” Under the model, its card and board game business provides it with a relatively stable revenue flow, while bitcoin is positioned as a core strategic asset within its Web3 ecosystem.

The company disclosed that part of its bitcoin holdings has already been deployed directly into Web3 infrastructure. For example, its MTT Network game public chain has allocated 1,000 bitcoins as staking assets to support blockchain security. Meanwhile, its Web3 game wallet, YAAKO Wallet, has committed 500 bitcoins as liquidity reserves for cross-chain asset transfers. Its Web3 poker platform, MTT Sports, also uses bitcoin as rewards for player tournaments.

A Web3 ecosystem

The company appears to be building a Web3 gaming ecosystem underpinned by bitcoin. Web3 games generally refer to gaming models that integrate blockchain technology, nonfungible tokens (NFTs) and cryptocurrencies, allowing players to own, trade and even transfer in-game assets instead of leaving them fully controlled by game publishers.

Over the past several years, many companies tried to build new gaming economies around a “play-to-earn” model. But as the crypto market cooled, many of those projects quickly unraveled due to collapsing token prices and unsustainable financial structures. To date, Web3 gaming has yet to achieve mainstream adoption.

Boyaa’s online gaming revenue was relatively stable last year at approximately HK$443 million, down just 0.4% year-on-year. That said, its underlying user metrics continued to deteriorate, at least in terms of user numbers. Its monthly active users (MAUs) plunged 34.5% from 4.15 million to 2.72 million last year, while paying users fell by an even steeper 54.7% from 201,000 to just 91,000.

The falling user numbers mean Boyaa’s ability to maintain its revenue increasingly depends on higher-spending users, rather than user growth. For example, mobile average revenue per paying user (ARPPU) for its Texas Hold’em games jumped 67.2% year-on-year last year, while ARPPU for other mobile card and board games surged 175%. The figures suggest the company is shifting toward a model that targets higher-spending users in smaller numbers, rather than relying on mass-market player growth.

The company’s heavy move into cryptocurrency comes with growing risks. Boyaa held only about HK$62.12 million in cash at the end of last year, while the value of its digital assets had ballooned to HK$2.92 billion. In other words, Boyaa’s balance sheet has become heavily “cryptoized.” When bitcoin prices rise, the company’s earnings and net asset value can expand rapidly. But the reverse is also true: a prolonged downturn in crypto prices could place significant pressure on Boyaa’s profitability and valuation, which is what is happening now.

From being China’s first listed card-and-board game company to reinventing itself as a Web3 stock, Boyaa’s recent transformation mirrors the broader search among many Chinese internet companies looking for “second lives” as their older businesses mature and stagnate. So far, however, investors remain highly cautious about the company’s Web3-plus-bitcoin strategy.

Boyaa’s shares have fallen about 42% over the last 52 weeks, significantly worse than bitcoin’s roughly 21.8% decline over the same period. That seems to show Boyaa has not only become a proxy for crypto assets, but is even a magnifier for swings in the volatile market.

With its Web3 initiatives still in the investment phase and lacking a proven stable business model, investors are increasingly treating Boyaa as a highly volatile crypto play rather than a traditional gaming company with predictable cash flow. That serves the company well when bitcoin prices are strong, but isn’t very reassuring in the current climate of weak prices.

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Three Chinese companies have formally terminated their Nasdaq listing bids since April, in a relatively unusual step suggesting they are being abandoned by their underwriters

Key Takeaways:

• Three small Chinese companies have withdrawn their Nasdaq IPO applications in the last month and a half, all for listings with fundraising targets of $20 million or less
• The increased withdrawals could signal pressure from the companies’ underwriters, which are being pressured by Washington to crack down on “pump and dump” listings

By Doug Young

Something new is happening on the way to the market. In the last month and a half, three Chinese firms that were seeking to list in New York have formally withdrawn their applications, including two this month. While it’s hardly uncommon for companies to fail in their listing attempts, an open admission of failure is a bit more unusual.

In this case, the flurry of formal withdrawals looks directly tied to an ongoing crackdown on suspicious “pump and dump” Chinese listing by regulators and politicians on both sides of the Pacific. While we can’t say for sure whether these three new withdrawals fall into that category, they certainly fit the profile with their small fundraising targets.

The three recent withdrawals – compared with just two by Chinese companies in the first three months of 2026 – suggests that forces are moving behind the scenes to pressure the companies to take this action. That pressure is part of an increasingly hostile environment on Wall Street towards Chinese companies that has caused new listings from the group, both large and small, to essentially disappear this year.

As you might expect, the three withdrawn IPO applications dating back to early April all come from obscure companies with equally obscure underwriters. That trio includes financial software maker Going International Holding, which withdrew its $20 million offering underwritten by Prime Number Capital on April 1. That was followed by Xinxu Copper Industry’s withdrawal of its $17 million IPO underwritten by Craft Capital Management and R.F. Lafferty & Co. on May 6. A day later, health products distributor Aixin Life International withdrew its application for a $10 million listing underwritten by Boustead Securities.

“The company has determined at this time not to proceed with the offering and requests that the (U.S. Securities and Exchange Commission) consent to this application on the grounds that withdrawal of the registration statement is consistent with the public interest and the protection of investors,” Aixin said in its filing requesting the withdrawal. Other withdrawals contained similarly vague statements.

Earlier this year, advertising services company Lemeng Holdings also withdrew its $20 million IPO application in February, while another advertising firm, Unitrend Entertainment, withdrew its plan for a tiny $6 million IPO in January.

Companies frequently abandon their listing applications to stock exchanges around the world after repeatedly failing to satisfy regulators and exchange operators that they are qualified to list. But in most cases, the companies just quietly abandon their IPO bids rather than make this kind of formal withdrawal. The withdrawals seem to represent a formal admission of failure, and, in this case, hint of behind-the-scenes pressure to take such action.

Such pressure could be coming on a number of fronts, including from the companies’ own underwriters, or from the Nasdaq, securities regulator or politicians in the U.S. Similar pressure could also be coming from China’s own securities regulator, which must approve all overseas listings by Chinese companies.

Everyone is trying to rid the U.S. market of small Chinese companies that engage in “pump and dump” listings on Wall Street. A typical case is Pomdoctor Ltd. (POM.US), which sold IPO shares last October for $4 each. The stock initially rose above $5, until one day in December, when it suddenly tanked to $0.50 from its $5.42 close the previous day. The stock now trades at about $0.13, meaning anyone who bought IPO shares has lost nearly all their investment.

Political crackdown

On the U.S. side, the latest crackdown on these suspicious listings came in March from the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party. The committee sent letters to three small investment banks that underwrote a large number of Chinese listings on Wall Street, demanding information about the companies’ handling of the listings.

It’s quite possible that this very public display has scared not only the three underwriters that received letters, but most of the other small underwriters that handle such listings, including names like Revere Securities, Prime Number Capital, Boustead Securities, Pacific Century Securities and Kingswood Capital Partners. It’s quite possible these underwriters have refused to keep supporting many of their Chinese listings still in progress, and requested the companies to formally withdraw their listing applications.

Last year, the Nasdaq also announced new rules that would require new Chinese listings to raise at least $25 million from their IPOs, and would expedite forced delistings of companies that failed to maintain public floats of at least $5 million. Those new rules still required approval from the U.S. Securities and Exchange Commission, and the Nasdaq has yet to announce if the SEC has given its go-ahead.

Then there’s the China Securities Regulatory Commission (CSRC), which has also been cracking down on these smaller listings, probably out of concerns about the broader reputation of Chinese companies on global capital markets. While the CSRC hasn’t formally announced any formal crackdown, its approval of new Nasdaq listings by Chinese companies has come to a near standstill lately.

Before April, the last Chinese company approved for a U.S. listing by the CSRC was Londian Wason New Energy Tech Inc., whose application got the official green light on Dec. 12. That was followed by a five-month absence of any new U.S. listing approvals, which finally ended on April 24 with an approval for DSC Holdings. No new Chinese companies have been approved since then, meaning the CSRC has approved just two new U.S. listing by Chinese firms in the last five months.

The listing logjam is part of broader U.S.-China tensions, with U.S. politicians worried about Chinese companies using U.S. capital markets to fund companies in sensitive areas like AI and emerging high-tech areas like new energy. These smaller “pump and dump” listings don’t really fall into that category, and instead the crackdown on that group is more of a routine anti-fraud campaign aimed at protecting investors.

Still, the concurrent crackdown on these smaller IPOs, combined with the increasingly hostile environment towards larger Chinese listings from companies in sensitive areas, seems to be the latest step in closing off Wall Street to fundraising by Chinese firms. While no one is completely closing the doors on such listings, at least not yet, Chinese companies seeking to tap global investors are likely to feel far more comfortable going forward in Hong Kong, which is rapidly emerging as a far friendlier place for offshore Chinese listings.

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Yunfeng Financial is leveraging its strong balance sheet and a strategic ether reserve to turn physical assets into a digital financial tool for professional investors in Hong Kong

Key Takeaways:

• Yunfeng Financial has launched a digital token backed by gold bullion for professional investors in Hong Kong on its Yunfeng Youyu platform
• The company is leveraging capital reserves from its core insurance business to power a new model aimed at turning gold bullion into a liquid asset

By Warren Yang

It may be best known for its ties to backer Jack Ma, a legend in China’s e-commerce sector as founder of sector leader Alibaba. But these days, insurer Yunfeng Financial Group Ltd. (0376.HK) is trying to become a leader in its own right with a low-key strategic move that could help it carve out a shiny niche within the vast and rapidly growing world of digital assets.

Last Thursday, the insurer rolled out a digital token backed by gold bullion for use by professional investors in Hong Kong. Each token represents one gram of 99.99% pure bullion that’s safely locked up in high-security Hong Kong vaults, though the company has not yet enabled secondary-market trading for this virtual asset. The project leverages blockchain infrastructure from AlphaToken, a startup led by Jiang Guofei, a former head of the digital technology division at Ant Group, the financial affiliate of Alibaba.

Yunfeng Financial kept the roll-out low-key, forgoing a stock exchange filing or press blitz in the run-up to the launch. Just a quiet addition to the company’s Yunfeng Youyu platform.

For Yunfeng Financial, which has a market capitalization of more than $1 billion and counts Ma among its principal backers, the token is the latest, perhaps most revealing, brick in a rather ambitious wall the company is building. It signals that Yunfeng Financial is attempting to create a full spectrum of products based on tokenization, virtual assets and decentralized web infrastructure, capitalizing on Hong Kong’s growing embrace of digital assets.

The company’s foray into asset tokenization marks the latest move in its evolution from a boutique investment bank and stock brokerage to a technology-oriented financial services firm. Its origin dates back all the way back to the 1980s when it was known as Mansion House Securities. It rebranded to Reorient Group in 2011 after some turbulence and restructuring, and four years later was acquired by Yunfeng Capital — a private equity firm founded by Ma and David Yu, a pioneer in elevator advertising.

Since the ownership change, Yunfeng Financial has expanded into insurance underwriting, which is now its primary business. This not only has drastically changed its business model but also provided substantial assets on its balance sheet fueled by insurance premiums. This “float” gives the company access to abundant capital that it can strategically deploy for long-term investments and technology initiatives.

Yunfeng Financial’s gold tokenization project didn’t come out of the blue. Last September, it purchased $44 million of the ether cryptocurrency as a strategic reserve asset. This may have raised eyebrows among some investors at the time, since cryptocurrencies are famous for their wild value swings, adding an element of volatility to the company’s balance sheet.

Gas fees

But the investment makes much more sense now, in connection with Yunfeng’s new tokenization business. To create gold-backed tokens on the Ethereum network, transfer them to its clients or provide cryptographic proof the digital assets are backed by real gold bars in a vault, Yunfeng Financial must pay “gas fees” using ether for the required computing power. So, by holding a massive reserve of ether, Yunfeng Financial ensures it has enough fuel to power its gold-token transactions without having to constantly buy the cryptocurrency on the open market at fluctuating prices.

Yunfeng Financial also did its homework on the regulatory front in preparation for the move into tokenization and virtual assets. Last September, around the same time it revealed its ether purchases, the company expanded its securities dealing license to include virtual asset trading services.

Its choice of gold for its first tokenized asset looks quite timely as the metal is currently on a historic rally, driven by a surge in demand from central banks and investors looking to hedge against inflation and geopolitical instability. And Hong Kong is taking steps to position itself at the epicenter of this trend. Its government is planning a 13-fold increase in the city’s gold-storage capacity to 2,000 tons by 2028 to develop all things related to the bullion, including tokenization.

Meanwhile, in February this year, China’s central bank issued a fresh directive banning real-world asset tokenization on the Mainland. So Yunfeng’s decision to focus on Hong Kong, specifically targeting professional investors in the city, looks strategically sensible given the city’s gold and digital-asset ambitions and close ties to the Mainland investment community.

Also, tokenization of commodities, mostly gold, is booming because it digitizes heavy, hard-to-move physical assets, making them easily traded around the clock, while keeping the real gold bars safely locked in a vault. The total value of tokenized commodities worldwide nearly quadrupled to $5.5 billion in the first quarter of 2026 year-on-year, according to blockchain analytics firm CoinGecko. More impressively, spot trading in tokenized gold hit $90.7 billion in the first three months of this year, surpassing the total volume for all of 2025.

With the gold tokenization business, Yunfeng can generate recurring revenue from custody and minting services while unlocking new profit potential by allowing institutional clients to use their digital gold as collateral for lending and on-chain wealth management. It could also use its expertise to eventually offer tokenized asset trading and to tokenize other real-world assets.

But Yunfeng is far from the only one entering the asset tokenization business. It is walking into a battlefield already occupied by some of the world's largest financial institutions.

For one, HSBC (0005.HK; HSBA.L) launched its own retail gold token in Hong Kong back in 2024. And just last month, it partnered with Hang Seng Investment Management to roll out a tokenized physical-gold exchange-traded fund (ETF). One way Yunfeng can differentiate itself is by leveraging its ties to Ant Group to offer a more agile, tech-native platform that integrates a decentralized finance (DeFi) ecosystem.

Yunfeng Financial is already financially thriving, driven by its core insurance business and cost-management strategies. Its net profit jumped more than 39% last year to HK$653 million ($83 million) as its insurance revenue grew 9.9%. And net cash generated from operations swelled 63% to HK$1.6 billion at the of 2025 from a year earlier.

Despite the strong results and move into asset tokenization, the company’s stock is down about 23% this year. It still trades at a price-to-earnings (P/E) ratio of 15.3, higher than 14.7 for online insurer ZhongAn (6060.HK). But Yunfeng has yet to generate the kind of excitement that has lifted a number of other financial stocks after announcing bolder moves into virtual assets.

At the end of the day, insurance is hardly an exciting sector for investors, especially in China’s current lukewarm economic climate. But if Yunfeng can continue to carve out a niche in the digital-asset universe with gold and other asset tokenization, it may add some nice glitter to its otherwise dull money-making machine.

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The financial services provider has rebranded and pivoted toward high-tech buzzwords, but it relies on low-margin supply chain brokerage services for most of its business

Key Takeaways:

• GoFintech’s has agreed to buy a minority stake in Luffa AI, a decentralized messaging app operator
• The deal marks the company’s latest effort to become a cutting-edge fintech business as it relies on a low-margin supply chain brokerage business for most of its revenue

By Warren Yang

GoFintech Quantum Innovation Ltd.’s (0290.HK) shares have made a quantum leap over the last six months as the company transforms by dipping its toes in a quickly expanding pool of trendy new areas from its core financial services realm. Whether the stock’s spectacular ascent is justifiable is another question.

The latest toe-dipping move came last Friday, when the company said it signed a non-binding memorandum of understanding to buy a minority stake in Luffa AI Ltd. GoFintech didn’t provide any price information, meaning it’s likely a small deal that gives it a low-risk entry into the world of decentralized messaging technology, which is Luffa’s specialty.

“The possible investment provides a unique avenue for the group to leverage its research and development achievements in quantum encryption algorithms and blockchain technologies,” GoFintech said.

Under the agreement, Luffa cannot entertain any other offers for three months, and GoFintech will probably use that time to conduct due diligence. No other details were included in the announcement, but that didn’t stop GoFintech’s shares from rallying 13% in the following two trading days anyway. They have more than tripled this year and are up by nearly a factor of six in the past 12 months.

The Luffa deal is the latest step in GoFintech’s transformation from a sleepy securities firm, previously known as China Fortune Financial Group, to an enterprise with high-tech aspirations. But the central plank of this evolution, at least so far, has centered on expansion into supply chain brokerage services that don’t quite live up to the company’s snazzy, buzzword-packed current name.

The company first changed its English name from China Fortune Financial to GoFintech Innovation in 2022, and last year added the word “Quantum” to get its current name. Such changes are a relatively common way for Chinese companies to attract investors, although they are often more for show and don’t necessarily reflect their business.

The new supply chain brokerage business did fuel a staggering 1,887% surge in GoFintech’s revenue in its fiscal year ended March 2025, followed by a 456% year-on-year jump in the following six months. But supply chain brokerage, which GoFintech started in October 2024 and now accounts for most of its revenue, is low-margin grind work that is a far cry from the types of cutting-edge fintech offerings the company aspires to. As supply chain brokerage services became GoFintech’s primary revenue source, the company’s gross profit margin crashed to 6.6% during the first half of its current fiscal year from 75% a year earlier.

Nonetheless, this unglamorous business is providing GoFintech with some of the capital it needs to fund its grand high-tech plans, which could help to revive its margins.

Art investment

As part of those plans, the company started an artwork investment business last year and signed 28 deals to buy HK$830 million ($106 million) worth of art, including Song dynasty ceramics, and even a Renoir painting. GoFintech can book gains if those assets rise in value, although the opposite can happen too. And in a potentially worrisome sign of things to come, the company indeed was forced to book a loss against those assets in the first half of the current fiscal year.

Yet the real end goal isn't simply flipping ancient vases for profit. GoFintech wants to use its growing art collection to fund more digital lending services built on blockchain technology. The company has laid out a vision to tokenize its art into non-fungible tokens (NFTs) and create a full platform for artwork-backed financing. It is a clever idea to unlock liquidity from illiquid assets like artwork, but it remains just an idea for now.

Then there’s a big plan to develop an ecosystem for real-world asset (RWA) tokenization. First, the company would help clients turn physical assets like artworks, real estate, and even bonds, into tradeable digital tokens. Next, GoFintech would use its own funds to scoop up undervalued assets to tokenize later, hoping for a profit if and when those assets rise in value. Finally, it would let investors buy and sell their tokens like stocks on an exchange. If it works, GoFintech takes a fee at every turn. It is an ambitious, capital-intensive plan. It’s also risky because the company can be left with a collection of overpriced porcelain and a handful of unused software licenses if any of the initiatives fail to gain traction.

GoFintech sought external capital to fund these projects as its own cash holdings totaled just HK$55.5 million ($7 million) at the end of last September, down more than 50% from a year earlier. Last year, it put together a deal to raise HK$1.33 billion from a new share sale. But that money didn’t come easily, and GoFintech only closed the deal in March this year after extending its deadline eight times.

In fact, the company didn’t even have enough money to buy art for its new artwork business, so it borrowed from a major shareholder and sought to turn the debt into equity. That contributed to the delays in the completion of the HK$1.33 billion new share sale.

All this shows that GoFintech lacks an ability to generate sufficient capital on its own to pay for its many new initiatives despite its eye-popping revenue growth that is somewhat misleading because it comes with extremely low margins.

The company's acquisition of a minority stake in CSOP Asset Management last year could provide a new profit contributor by letting it tap into a licensed asset manager with a track record in exchange-traded funds (ETFs). But that deal closed only in May 2025, and any gains from it have not been significant enough to notably improve its profitability.

All these initiatives amount to a lot of uncertainty for a stock that trades at a meteoric price-to-earnings (P/E) ratio of more than 240 – showing investors are expecting big profit growth sooner rather than later. This kind of valuation is purely speculative and leaves GoFintech with very little room for error with its many new irons in the fire. But the potential for issues with the new businesses is quite real. The art collection could lose value. The RWA platform could meet with tepid demand. And the company’s core supply chain business could be hit with credit defaults.

All that may leave many scratching their heads about why GoFitech has become such an investor darling. It could also present some significant headwinds for the stock if the company’s profits don’t start improving notably in the next year.

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The business payment specialist boasts rapid revenue growth and a superb gross profit margin, even as it lost money last year due to non-operational factors

Key Takeaways:

• Hong Kong IPO candidate Extransfer reported an eye-popping $483.5 million net loss last year largely due to non-operational factors related to IFRS accounting rules
• The business payments company’s gross margin of more than 90% and fast revenue growth stand out from other fintech ventures, many of whose operations are losing money

By Warren Yang

On paper, at least, Extransfer Ltd. is a bit of a victim of its own success. As it seeks to go public, the fintech company’s management must be hoping investors see through this irony created by accounting rules that make it appear to be a massive money-loser.

Last Friday, Extransfer, which provides cross-border trade payment services under the XTransfer brand, filed for a Hong Kong IPO. At first glance, the company appears to be a typical, fast-expanding tech business. Founded in 2017 by a team of veterans from Ant Group and Visa, the enterprise boasts a trajectory that is, on the surface, solid but unremarkable for its sector. What makes Extransfer stand out is its eye-popping gross profit margin that exceeds 90% – which reflects extremely low costs the company incurs to provide its services. Yet, despite that extraordinary feat, the company is deeply in the red.

Its huge loss is less a sign of operational failure and more the result of what essentially is an accounting penalty for strong growth. Because Extratransfer has been so effective at raising capital and boosting its valuation – which hit about $3 billion in its latest funding round in March, triple the amount in 2021 – it has fallen into an accounting trap under IFRS rules.

As part of their investment in the company, Extratransfer issued convertible preferred shares to private backers including Alibaba and China Merchants Venture. Under IFRS standards, these instruments are treated as liabilities that must be regularly updated to reflect their latest market value. As the startup's valuation rises, the value of those liabilities increases, eroding the company’s bottom line. Extransfer booked a $524 million valuation loss for the preferred securities last year, up from $162 million in 2024. As a result, its net loss ballooned to $483.5 million from $153 million during the period.

Profitable on an adjusted basis

In short, the more valuable Extransfer becomes as a company, the more money it appears to lose due to the increase in the value of the preferred shares. Strip away this non-cash drag on net income, and Extratansfer made a decent adjusted net profit of $47.7 million last year. It also generated a net cash inflow of about $58 million from operations, nearly six times the amount for 2023.

For investors worried about the optics of nearly $1 billion in cumulative losses over the last three years, here’s the good news. The paper losses will stop the moment the company rings the opening gong at the Hong Kong Stock Exchange. Upon a successful IPO, the convertible preferred shares automatically convert into ordinary ones. And at that moment, they move from the "liability" column to the "equity" column on the company’s balance sheet.

Because companies don’t have to incorporate changes in the values of their ordinary shares in their income statements, Extransfer will stop being punished for becoming more valuable as a company, and its bottom line will start to more truly reflect its operational performance.

Operationally, the company does appear to be doing quite well in its somewhat unglamorous niche of global finance. It focuses on business-to-business (B2B) transactions among small- and medium-sized enterprises (SMEs) trading in physical goods like textiles and machine parts, as opposed to e-commerce payments or consumer remittances.

Extransfer has built a specialized settlement network called X-Net and an AI compliance tool named TradePilot to facilitate the heavy documentation required for traditional trade. Thanks to the use of technology, its fraud rate is just 0.003%, one of the lowest in the sector, the company said in its prospectus.

High-margin business

Now, here’s how the company can operate on such high margins. At its heart, Extransfer’s business model is about removing fees typically charged by banks. Unlike traditional financial institutions that hit small businesses with monthly account fees and wire-transfer charges, Extransfer makes those services free for users who open and maintain global accounts and use them to send money to each other on the company’s network. It essentially adopts a "freemium" approach that lowers costs for businesses.

So how does the company make money? It generates the bulk of its revenue from exchange-rate spreads — the difference between wholesale rates it gets from banks and retail ones it offers its customers. Another growing revenue source is fees from technology services that help SMEs comply with anti-money laundering rules, provide them with market intelligence like trade trends, and enable them to manage currency risks and bookkeeping more easily.

On the cost side, because Extransfer’s TradePilot AI handles the grueling work of checking invoices and shipping labels automatically, the company doesn’t have to hire an army of human auditors. This allows it to process large volumes of business transactions at almost zero cost, turning the massive amount of global trade payments it handles into a highly efficient, automated cash-generating machine for the company.

That said, Extransfer does incur heavy operating expenses, including personnel costs and marketing expenditure. But its ability to generate cash directly from customers by offering them services separates it from many fintech ventures that act as facilitators reliant on fees from banks that conduct actual financial transactions. That highly profitable business model has helped Extransfer build up its own cash holdings to $153 million at the end of last year, more than double what it had two years earlier.

One reason Extransfer is looking raise more money through a Hong Kong IPO is to further expand globally. It already earns nearly half of its revenue outside Greater China, but it is looking to accelerate growth in the Middle East and Africa. Its revenue is already growing quickly, rising 53% last year to $248 million from $162 million in 2024.

Extransfer’s $3 billion valuation translates into a price-to-sales (P/S) ratio of about 12, based on its 2025 revenue. That’s double the 6 for Wise plc (WISE.L), which focuses on consumer and SME remittances, among its payment-service peers. Wise has a lower gross margin than Extransfer but its operating margin is superior, even on an adjusted basis that excludes the charges for changes in the value of the convertible preferred shares.

At the $3 billion valuation, skeptics may think Extransfer is asking for too much. The task for the company’s managers will be convincing investors that it can cut operating expenses while maintaining its strong top-line growth and almost too-good-to-be-true margins.

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"The one thing that professional investors or sophisticated investors fear the most is uncertainty."

Key Takeaways

• A major portion of China's massive $1.2 trillion trade surplus is flowing into the Hong Kong stock market, according to a Caixin analysis
• The recent passing of legendary investor Mark Mobius underscores a reality that an old guard of early China bulls is dying out and not being replaced

By Doug Young & Rene Vanguestaine

We're currently witnessing a pair of fascinating developments in the Chinese equities space. A recent analysis by Caixin suggests that a significant portion of China's $1.2 trillion trade surplus is unexpectedly flowing into the Hong Kong stock market. At the same time, the death of celebrity investor Mark Mobius this month highlights a broader trend: the legendary China bulls of the past are fading away, and they aren't being replaced. These two stories underscore a profound shift in the Chinese market — one driven by surprising internal capital flows, the other by a structural decline in Western investor optimism.

Caixin’s analysis shows that instead of going into China's forex reserves or domestic infrastructure building, a massive chunk of the country's export surplus is being funneled directly into Hong Kong equities. This is a fascinating revelation. If hundreds of billions of dollars from China's export machine — which really is just thousands of individual companies — are flowing into this offshore market, it helps explain the exchange's prolonged rally and how it's been able to effortlessly absorb so many fairly large IPOs from Mainland firms.

Inevitably, some of this surplus is being used by companies expanding overseas to build manufacturing plants in Southeast Asia, Europe, and Latin America. Yet, a substantial amount is still hitting the stock market. From a broader macro standpoint, one might wonder what this means for the Chinese economy if funds aren't fully directed toward factory expansion or machinery upgrades.

Fortunately, one doesn't necessarily preclude the other. Chinese state-owned banks, whose mission is to execute government policy, are still lending aggressively to companies, particularly in critical sectors like AI and high-end manufacturing. We've seen this dynamic over the past 15 years — money has heavily flowed into either the stock market or real estate at various times, but that hasn't stopped the country's manufacturing sector from growing.

However, there's a looming question. A decade ago, surplus investment money poured into real estate, and we all know that didn't end well. Furthermore, Beijing has a historically strict approach to managing money generated overseas by Chinese companies. It typically twists arms to bring export and IPO proceeds back to the Mainland. This raises the question of whether these current offshore stock flows are happening with the government's approval, or if authorities are simply too busy with other economic issues right now. If it's the latter, we might eventually see a harsh reversal rather than a soft landing once Beijing decides to wake up and intervene.

The end of a legendary era of China bulls

This brings us to the second major shift in the market. Mark Mobius, renowned for his love of emerging markets and his early bullishness on China, died this month in Singapore at the age of 89. He belonged to an elite group of early investors, alongside figures like 83-year-old Jim Rogers, who made substantial profits championing China's growth potential when the country was on the up-and-up.

When reflecting on this bygone era, there are some cases that perfectly illustrate that golden age — like observing early offshore investments in Sinopec (0386.HK) around 2003 or 2004. Back then, it was the perfect time to go heavy into emerging markets because China clearly looked poised for substantial growth. Today, the economic promise is drastically different. In a post-Covid environment hampered by subdued consumer spending and shifting geopolitical tides, we simply don't see younger bulls stepping in. Instead, a new generation of bears has emerged in the West. This includes super investors like Stanley Druckenmiller, who has said he exited his China positions in 2018 and hasn't made a single stock trade there since.

Despite the recent stock market rally fueled by those trade surplus inflows, professional Western investors are hesitant to return. While sectors explicitly favored by the government for national security can still deliver substantial returns, the overarching deterrent is uncertainty. Sophisticated investors fear government-driven uncertainty above all else.

There are some cases even today where authorities abruptly intervene in private deals — such as Beijing stepping in to cancel the acquisition of Manus by Meta (META.US). Such actions destroy investor confidence, signaling that even successful investments can fall victim to interference completely out of their control.

For foreign capital to return, this regulatory heavy hand would need to reliably disappear. Right now, U.S. investors have highly attractive, predictable alternatives. The American AI sector remains a massive draw where the rules are well known and the government doesn't step in to alter them on a whim. Other emerging markets, like India or Vietnam — though Vietnam has its own top-down state control — also appear freer at the moment. Until Beijing can prove it has permanently removed regulatory uncertainty, Western investors will likely stay away, heavily deterred by an increasingly extensive track record of unpredictable reversals.

The online brokerage is moving faster than rivals to remove a rule limiting trading by low-balance accounts, aiming to boost trading volumes on its platform

Key Takeaways:

• Webull will immediately implement the SEC’s repeal of a 25-year-old rule limiting trading by small retail investors when it takes effect on June 4
• The change, approved by the U.S. securities regulator last week, should help boost trading volumes on Webull’s app, charging up revenue from trading-related fees

By Warren Yang

Webull Corp. (BULL.US), the discount brokerage with roots in China, is doing what it does best: moving ahead faster than everyone else to take advantage of a major new rule change that could charge up its revenue.

Rivals like Robinhood Markets (HOOD.US) are probably still parsing the fine print of the Securities and Exchange Commission’s (SEC) decision last week to repeal its 25-year-old Pattern Day Trader (PDT) rule. That restriction required retail investors using borrowed money to maintain a minimum balance of $25,000 in their accounts to execute more than three day trades – the buying and selling of a stock in a single day – in any given week. The policy effectively limited activity by small retail traders that are some of the most enthusiastic stock buyers.

Webull, whose founding team harkens from Chinese e-commerce giant Alibaba, wasted no time announcing plans to capitalize on the big change.

Last Wednesday, the day after the SEC approved the reform, Webull said it was “unlocking active trading for all” and would apply the rule change as soon as it takes effect. The removal of the trading restriction will take effect June 4, and brokerages can take up to 18 months to fully implement it, something traditional institutions like Charles Schwab (SCHW.US) wanted to give them time to retool their old risk management systems.

Under the new framework, brokerages must adopt real-time risk models to ensure traders’ intraday positions don’t exceed their risk-adjusted capital. This requirement could give technology-oriented brokerages like Webull a critical advantage because they are already equipped with advanced risk assessment systems. But it can also turn companies like WeBull into effective Guinea pigs for finding any potential pitfalls of trading volumes that could surge under the rule change.

"Our priority is ensuring Webull customers can take advantage of these changes from day one while continuing to benefit from the advanced tools, real-time data, and full product access that define the Webull trading experience,” Anthony Denier, Webull’s president and U.S. CEO, said in the announcement.

The PDT rule is a relic of the 2001 dot-com bubble, aimed at preventing inexperienced investors from overleveraging their accounts. But for 25 years, the $25,000 minimum effectively barred millions of small retail investors from engaging in the type of high-speed trading that institutional players have enjoyed. The SEC has finally admitted that the $25,000 threshold is outdated as modern real-time risk-monitoring systems can protect the market more effectively than an arbitrary minimum account balance.

The rule change could turbocharge “gamified” trading that drives Webull’s revenue. Like Robinhood, Webull doesn’t charge commissions for trading U.S. stocks. Instead, it generates revenue by routing its trades to specific market makers that pay for that service. It also earns fees from customers for more advanced functions like margin trading and short selling. All these revenue streams require constant, high-velocity turnover to generate revenue and profits. So heavy volume trading is everything for Webull.

Under the PDT regime, an average trader with, for example, $5,000 in his account was a low-yield customer for the company. He could only conduct day trades three times a week, sharply limiting his order flows to market makers like Citadel Securities or Virtu Financial. Now, imagine that same customer can trade 50 times a day, equating to hundreds of orders to market makers each week.

While Webull’s revenue comes from millions of tiny fees, it also spends heavily on marketing to continuously lure new traders. As a result, it made an operating loss in 2024. It managed to turn a profit last year, but with a gross margin of just about 10%.

High-velocity trading

Because it uses a low-margin business model that depends on high trading volumes, Webull historically has jumped at every opportunity to grow revenue through increased trading. The brokerage was among the first to launch 24-hour trading for more than 500 U.S. equities and exchange-traded funds (ETFs) in 2023, and it has aggressively promoted options that expire within a trading day.

Obviously, Webull isn’t the only one eyeing the spoils of the regulatory easing. Among others, Robinhood, which has spent the last year trying to woo retirement accounts and grow its credit card business, is in strong position to benefit.

China-oriented rivals like Futu Holdings Ltd. (FUTU.US) and UP Fintech (TIGR.US), which provide U.S. stock trading for mostly Asian user bases, can now offer their customers high-leverage, high-frequency services for U.S. trading accounts that match the speed of their experience in other global markets.

Shares in all these brokerages rallied last week following the SEC rule change. But Webull led that charge, as its shares surged 11%. This indicates that investors are betting the company could be a prime beneficiary of the new regulatory environment.  

Still, Webull shares have a lot of ground to recover. The company’s stock has lost a quarter of its value since it went public a year ago through a merger with a special purpose acquisition company (SPAC). Even after that, it still trades at a startling trailing price-to-earnings (P/E) ratio of 53, higher than 45 for Robinhood, and well above 16 for Futu and 8 for UP Fintech.   

Webull may well thrive now that the trading restriction is gone. Its app, cluttered with technical indicators, deep market data and complex options chains, has always catered to people who take their stock trading very seriously. That means many users of its services are exactly the kind of traders who are ready to buy and sell stocks round the clock.

But as is the case with everything in life, a good thing doesn’t come without a risk. In fact, the removal of the $25,000 safety net introduces a serious financial risk for Webull. Without that large cash cushion, small-time traders using borrowed money can suddenly lose all their funds and much more if stock prices suddenly collapse.

In those moments, even the fastest monitoring software can’t sell their shares quickly enough to stop their accounts from dropping deeply into the red, leaving a company like Webull hobbled with bad debt from users who simply don't have funds to pay it back. And with U.S. markets now trading in record territory and some predicting a correction is inevitable, Webull could quickly become a case study for how the rule change could hurt brokerages if markets suddenly turn south.

For now, at least, investors seem to be focusing on the positives. But only time will tell if Webull has a rigorous enough risk-management system to reap benefits from what appears to be a regulatory gift without getting gored in the process.

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"Young Chinese today think nothing of buying just anything that they need on an app and getting it delivered to their door 30 minutes later."

Key Takeaways:

• A new crackdown on private lenders highlights a broader government strategy to lower living costs for young Chinese to revive spending
• A domestic toothpaste maker's rapid rise shows how local consumer brands are leveraging e-commerce and influencers to challenge established rivals

By Doug Young & Rene Vanguestaine

We're currently watching two unfolding stories that capture the shifting realities of China's consumer economy. On one hand, a fresh regulatory crackdown is sweeping through China's private financial sector, pressuring the last surviving fintech lenders. On the other, an up-and-coming toothpaste maker is brushing up for a Hong Kong IPO, riding the waves of China’s fast-paced, digital-first retail environment. Both stories reveal a changing consumer landscape where the government intervenes to lower financial burdens on young people, while agile domestic startups invent aggressive new ways to sell to them.

The latest regulatory tightening is all about interest rates. The government is capping the maximum that fintech companies can charge for loans at 24%, with suggestions they could eventually force companies to go as low as 12%. This move is partly aimed at clamping down on hidden fees that drive up effective interest rates for consumer and small business loans to as much as 36%. In the West, credit cards and check-cashing services are famous for charging similarly high rates. But in China, we're looking at a totally different environment.

This crackdown is one of many steps the Chinese government has taken to lower the financial burden on consumers, especially younger people. Three or four years ago, Beijing realized the overall cost of living was one reason why the younger generation was reluctant to have kids. Raising the one-child limit to two, and eventually three, didn't really help the falling birth rate. To combat this, regulators started taking measures to lower housing costs and killed the after-school education sector to eliminate an expensive cost for educating children. Capping loan rates is just an additional effort in that direction, part of a crusade to get consumers to spend more again to revive the overall consumer economy.

From the lender perspective, this spells serious trouble. The few remaining publicly traded fintech lenders have extremely low valuations, way down from where they were at the end of last year. We'll likely see companies get out of this particular business, pivot to other areas, or fold altogether. We've seen attempts like this from Qudian, a top performer five or six years ago, which ended up folding that business to try logistics and built a venture in Australia that didn't work. Yiren Digital (YRD.US), which used to be called Yirendai in the peer-to-peer (P2P) lending days, started diversifying into insurance brokerage, social e-commerce, and AI. And FinVolution (FINV.US) began expanding outside China, going to Indonesia and recently setting up shop in Australia. But overall, as an investor, we'd be reluctant to put much money into this sector. It doesn't look like there's a lot of big potential left.

Social e-commerce and influencers build toothpaste brand

While the fintech space is contracting, the consumer products space is writing a much different growth story. We're looking closely at Xiaokuo Technology, which has just filed to list in Hong Kong. The company is better known for its Canban toothpaste brand, which launched only four years ago but already holds 9.2% of the massive Chinese market. Getting to that share in less than four years is pretty remarkable.

Canban's rapid rise isn't unique. It's part of a larger consumer brand story that's quite different in China from the West. While famous Western consumer brands like Colgate (CL.US) or Crest have decades of history, many Chinese brands are quite young. To compete with these global giants, you've got to be different and go at it with a very different strategy. Over the last six to eight years, social e-commerce and influencers — key opinion leaders, or KOLs — have developed much quicker as a marketing tool for promoting and selling consumer goods. There's also a growing favor towards Chinese as opposed to Western brands.

We think this dynamic has become somewhat cultural. Young Chinese people today live in a world where they think nothing of buying just about anything they need on an app and having it delivered to their door 30 minutes later. You don't have any real Western equivalent of that speed. Some of that was enhanced through the three years of Covid lockdowns, which almost forced people to quickly adopt that new way of consuming. Throw in the influencers, who were already active in selling goods online well before the pandemic, and we're seeing a new consumer culture. Influencers here aren't shy at all about hawking products. If you listen to somebody, see a product, and decide you like it, you click and buy, and an hour later it shows up at your doorstep.

We’re mixed on how this company's IPO should do. The Hong Kong market is still pretty hot, but it's mostly catering to tech, healthcare, and biotech companies. Pure consumer plays haven't been as attractive. However, this is a bit of a special story. If the company can sustain its rapid growth, we could see people buying the stock. The bigger issue for investors is whether the company can execute flawlessly at the same time it's scaling up very fast. There's also the question of whether they really have a unique product or just a strong KOL strategy that other companies might be able to copy just as easily. But being first to market gives you some momentum, even if people eventually realize there are pretty strong competitors emerging.

China's latest move against predatory lenders is crippling legitimate loan facilitators like Yiren and Qfin by imposing a strict interest rate cap

Key Takeaways:

• Yiren Digital plunged into the red in the fourth quarter of 2025, while Qfin's profit tumbled, as regulators enforced a 24% ceiling on borrowing costs levied by private lenders
• All lending platforms must fully disclose every facilitation fee by Aug. 1 — stripping away gray zone fees that once boosted their profits

By Warren Yang

Beijing has once again reminded investors of the type of sudden new regulation it often doles out without warning, which can quickly change the fortunes of financial companies for the worse.

Last Tuesday, China’s Ministry of Public Security and the National Financial Regulatory Administration (NFRA) signaled the start of a new phase in their war on the financial "black and gray" markets. The official rhetoric targets "predatory" brokers and other underworld financial firms that do things like tricking grandmothers into guaranteeing loans for strangers. But legitimate consumer loan platforms like Yiren Digital Ltd. (YRD.US) and Qfin Holdings Inc. (QFIN.US, 3660.HK) are also ending up as collateral damage in the latest dragnet.

At the heart of the matter is a 24% cap on interest rates. While China’s Supreme People’s Court has long held that rates above that level are legally unprotected, the limit was previously just a judicial guideline. But that changed last October, when it became a hard ceiling, above which anything was illegal. Now, under a new enforcement regime declared last week, authorities are shifting from administrative fines to aggressive criminal prosecutions, targeting lenders who exceed the cap as criminals rather than simply regulatory violators.

For years, platforms like Qifu and Yiren Digital operated in a lucrative "gray" zone by charging interest rates that often effectively drifted toward 36% when various fees were included. They could get away with this because borrowers technically volunteered to pay those charges under their contracts. But after the October rule change, regulators have stripped away these extra interest costs disguised as fees, treating total borrowing costs that exceed 24%, including any fees, as illegal. By Aug. 1, all platforms must fully disclose every facilitation fee.

Within the realm of mainstream private lenders, Yiren Digital and Qfin are among those getting hit the hardest. Both companies saw their revenue fall year-on-year in the fourth quarter of last year. What’s more, Yiren plunged into the red. Qfin fared better by remaining in the black, though even in that case its net profit nearly halved. And both companies were summoned by regulators last month due to a high volume of customer complaints about them.

Changing mood

The mood was quite upbeat for the two companies as recently as the first half of last year as they carved out a nice niche within the financial sector by targeting consumers who need quick, short-term loans. That strategic focus resulted in nice growth in both their revenue and net profits in the first six months of the year. But then the regulatory bombshell dropped.

“For the credit solutions business, 2025 was a unique year,” Yiren Digital CFO Ka Hui said on the company’s latest earnings call last month. “We began with a very good growth momentum, seeing a 43% growth in loan facilitation volume in the first half of 2025. However, we subsequently faced a downward trend in the credit cycle alongside with regulatory changes.”

Anyone who follows China’s private financial sector is probably feeling a sense of déjà vu, as the latest move extends a prolonged crackdown on an original group of peer-to-peer (P2P) lenders that sprung up in the early 2010s. That campaign began in 2016 and all but killed most of those lenders, forcing companies that remained to change their business models, most often by becoming loan facilitators rather than direct lenders. Yiren Digital, formerly known as Yirendai, is one of the companies that made the transition, and was recognized by a trade magazine as the best lending platform in China in 2017.

Fine line

Loan facilitation was supposed to be a safe evolution for P2P lenders. But the remaining companies are still very much at the mercy of regulators – as the quick, sharp reversal of the fortunes of Yiren Digital and Qfin late last year shows.

All this is happening as Beijing tries to walk a fine line between reinvigorating a slowing economy, which inevitably involves loan-financed spending, and preventing consumers from collapsing under the weight of excessive debt burdens. It’s a delicate act. While the government wants consumers to spend more to boost “high-quality" development, it doesn’t want high-interest loans to become prevalent either.

Life doesn’t look set to get any easier for consumer loan companies either. The NFRA is looking to ultimately tie comprehensive borrowing costs, including all associated fees, to four times the one-year loan prime rate, which currently stands at 3%, by the end of 2027. So, if the benchmark stays at that level, the interest rate ceiling will effectively be slashed to 12% – or just half the current 24% level.

As their current loan facilitation business comes under pressure, both Yiren Digital and Qfin are pivoting to new areas. Yiren Digital is rebranding itself as an "AI-native" company, using DeepSeek to commercialize its proprietary artificial intelligence (AI) tools. Qifu is doubling down on its software-as-a-service (SaaS) platform for banks.

Yiren Digital’s New York-listed shares are down more than 50% in the past month, falling to a highly depressed price-to-sales (P/S) ratio of just 0.17. Qfin’s stock hasn’t done quite as poorly but is still down 10% over the last month. Its P/S ratio now stands at 0.8, which is better than Yiren Digital’s but hardly inspirational.

Those poor valuations probably reflect investors’ concerns about the companies’ perennial vulnerability to regulatory risks in China. As it becomes tougher to sustain profitable loan facilitation services, pressure will only grow on these companies to find new revenue sources. The trouble is that they, and their peers, all are likely looking at the same rising areas like AI and software services, as well as growth opportunities abroad.

Any pivot from the heavily regulated financial sector looks necessary as the business of traditional lending gets increasingly difficult. But such efforts also look like desperate attempts to avoid becoming the next casualties of China’s love-hate relationship with its private lending sector.

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The latest annual results from Bank of Gansu and Jiangxi Bank show their margins are getting compressed by high interest payments on their time deposits and falling loan yields

Key Takeaways:

• Bank of Gansu and Jiangxi Bank are seeing their net interest margins compress sharply as they get pressured to lower loan interest rates but remain stuck with costly time deposits
• Their growing inability to generate profits means they may need capital support from their state-owned controlling shareholders, most likely diluting other shareholders

By Warren Yang

The latest annual results from Bank of Gansu Co. Ltd. (2139.HK) and Jiangxi Bank Co. Ltd. (1916.HK) — regional lenders anchored in two of China’s less developed provinces — paint a bleak picture of this corner of the Chinese financial sector.

Small regional banks like this pair are suffering the most in an industry-wide margin squeeze afflicting Chinese lenders. Loan demand is weak in a slowing economy, and the central bank’s low interest rate environment is crushing loan yields. At the same time, these smaller banks are struggling to reduce high costs for deposits. As their profitability comes under growing pressure, external capital support from their state-owned shareholders increasingly looks necessary. That would further undermine long-suffering private investors who have already seen the value of their shares shrivel.

Let’s start with Bank of Gansu, based in the country’s less affluent Northwest. Not only did the bank’s new lending shrink last year, but its net interest margin (NIM) also dropped to 1.09% from 1.18% in 2024, and 1.65% as recently as 2021, according to its report. As a result, net interest income, its primary revenue source, dropped 4.8% to 4.4 billion yuan ($637 million). Jiangxi Bank managed to boost its new lending, but its NIM narrowed even more, by more than 0.20 percentage points, to 1.41%, driving down its net interest income by nearly 10% to 7.7 billion yuan, according to its report.

The two banks are structurally more susceptible to margin pressure than big state-owned national lenders or regional banks in wealthier provinces.

Unlike those peers that benefit from deep pools of low-cost demand deposits generated by big corporate customers and high-velocity transaction flows, Jiangxi Bank and Bank of Gansu rely heavily on time deposits that carry much higher interest rates. That funding structure is a costly difference and one that’s difficult to escape.

That’s likely because large proportions of their retail customers are risk-averse individuals who prefer the certainty of fixed interest rates in exchange for limited access to their funds, over greater flexibility that comes with keeping money in near-zero-yield on-demand accounts. Meanwhile, these banks’ corporate clients — mostly small enterprises and local government financing vehicles — either keep minimal balances in their low- or no-interest on-demand accounts, or try to get high rates for those deposits.

For Jiangxi Bank, retail time deposits, which carry an average interest rate of 2.61%, account for almost 90% of its retail deposit base, which make up a little more than half of its total deposits. By comparison, the bank pays a far lower 0.06% for demand deposits. The story is similar for Bank of Gansu, which is even more reliant on retail depositors.

Term deposits do offer some benefits for banks compared with demand deposits. Most notably, the former provide stability for a bank’s liquidity. But they become a severe drag on profitability when loan yields decline as they have been in China these days. Bank of Gansu is facing a bigger headache as it struggles to make new loans in a slowing economy where borrowers are increasingly unable to repay their debt. The ratio of its loans to its deposits fell to just a little over 66% last year, meaning a significant share of its deposits is sitting idle, costing the bank money without generating returns.

Buffer erosion

In an apparent effort to defend their bottom lines against these headwinds, Bank of Gansu and Jiangxi Bank are doing something that doesn’t look so prudent — reducing their buffers against loan losses.

Jiangxi Bank cut its provisions for credit losses by about 15% last year. This helped it limit the decline in its net profit to 4% last year, a good outcome compared to a 22% plunge in its operating income. The decrease in loan-loss provisions may suggest that the bank’s management has become more confident about its asset quality, with its nonperforming loan (NPL) ratio falling to 2.00% last year from 2.15% in 2024. But skeptics might see this as imprudent maneuvering to prop up its profits.

And even though Jiangxi Bank’s NPL fell, it’s still higher than the average for large commercial banks. Meanwhile, the ratio of its provisions relative to bad debt, at about 160%, is lower than the 200%-plus industry norm. That means Jiangxi Bank operates on a thinner cushion against any major crisis that could be triggered by a wave of defaults.

Bank of Gansu has an even weaker buffer, which eroded further after it cut its loan-loss provisions to about 131% of NPLs at the end of last year, a good 3 percentage points lower than a year earlier. Helped by this trick, its net profit actually grew 1% last year despite a 9% fall in its operating income.

The bank’s bad loan ratio held steady at 1.93% last year, but it also sold a large chunk of its bad assets to an asset management company that is a subsidiary of one of its large shareholders. That kind of clean-up – basically shifting bad assets from a listed company to an unlisted related company – is an important reminder that headline numbers of Chinese banks, especially small ones, often require some scrutiny.

Now, the biggest challenge for the two banks is the erosion of their capital buffers. In effect, they can’t generate sufficient capital to cover their business growth. Particularly, Jiangxi Bank’s Common Equity Tier 1 (CET1) capital ratio fell below 9% as of the end of December, dangerously close to the regulatory minimum requirement.

If their capital deterioration continues, these lenders will have little choice but to ask their controlling shareholders, usually regional government entities, for fresh injections in exchange for new shares. That would cost other shareholders in the form of dilution.

So, it’s no wonder these two banks’ shares have fallen out of favor with investors, losing close to 80% of their value in the past five years. Bank of Gansu shares trade at a paltry price-to-book (P/B) ratio of 0.11 and Jiangxi Bank is even worse at 0.08. This basically means for every $1 of equity on their balance sheets, investors are willing to pay only around 10 cents, suggesting that they are extremely skeptical about the true values of their assets and believe NPLs will eventually erode their book values.

The figure for many large banks in China is also below 1, such as the 0.47 for ICBC’s (1398.HK; 601398.SH) Hong Kong-listed shares, reflecting investor concerns about this group in the current weak economic climate. But if life is hard for big banks, it looks even more miserable for smaller ones, especially in China’s less developed regions.

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The company’s top-line revenue growth hides intensifying profitability pressure as it ramps up its thin-margin car selling business to supplement its higher-margin car leasing

Key Takeaways:

• XXF's revenue jumped 27.2% last year, but its gross profit rose at just a third of that rate, underscoring severe margin compression
• The company is ramping up its car selling to boost revenue, but that business has paper-thin gross margins compared with its core car leasing business

By Warren Yang

At first glance, the latest annual results from XXF Group Holdings Ltd. (2473.HK) seem to show the auto leasing company is faring surprisingly well despite operating in a rapidly stalling Chinese car market. But a closer look at the numbers suggests that it’s facing intensifying profitability pressure as it tries to keep its revenue engine running.

XXF’s revenue increased 27.2% to 1.86 billion yuan ($270 million) last year, which looks quite strong and far exceeds the growth rate for car sales in China, according to its 2025 results released last Friday. Yet the company’s gross profit rose just 9.3%, or about a third of the revenue growth rate. And while its net profit grew 15.3%, the figure inched up a mere 3.5% when share-based compensation expenses are stripped out. The wide gap between XXF’s revenue and gross profit growth can only mean one thing: a sharp compression of margins.

A combination of industry-specific challenges and macroeconomic conditions is squeezing profitability for China’s auto companies in general. At the industry level, automakers desperate to boost sales in the current climate of weak demand and massive overcapacity have unleashed a wave of subsidized low-interest and zero-interest loans with long terms. That’s forcing independent car sellers and lessors like XXF to cut their terms to remain competitive.

As defending its market position becomes increasingly difficult, XXF, which traditionally has focused on leasing non-luxury cars to customers in lower-tier cities, is turning to direct vehicle sales. Last year, revenue from the company’s business of direct car selling, which also includes a rapidly growing export operation, surged more than 400% to 411 million yuan. The huge jump lifted that part of the business to about 22% of its total revenue from just 5.4% in 2024. XXF sells both new cars directly procured from automakers in China, as well as previously leased vehicles whose leases expired.

But this shift is further dragging down XXF’s margins. The car sales business carries a paper-thin gross margin of just 4.4%, a tiny fraction of the 33% for its core auto leasing operations. As the car sales segment expanded, XXF’s overall gross margin shrank more than four percentage points to 25.7% in 2025.

The margin pressure appears to have sharply intensified in the second half of last year, given that XXF’s gross margin was 30% in the first half. At the same time, the company’s revenue increased sequentially from the first half of the year to the second. This probably reflects the broader industry’s descent into a year-end price war that saw the sector’s profit margin hit a record low of 1.8% in December, less than half the level of about 4% a year earlier.

Things aren’t likely to get any better this year. After notching 6.7% growth last year, a big part of that from inventory clearing at big discounts and people rushing to take advantage of government incentives, China’s domestic car sales fell 8.8% in the first two months of this year.

XXF’s growing focus on vehicle sales in the current weak industry climate creates another headache for the company. Constant price cuts by automakers lower the values of vehicles in XXF’s own inventory, which could force it to cut prices on those vehicles to attract buyers, potentially making it sell vehicles at losses.

Bet on exports

As challenges mount in China, the company appears to be betting on exports to capitalize on the growing popularity of Chinese cars overseas. Its exports soared some 570% to 276 million yuan last year, accounting for more than two-thirds of total revenue from car sales. XXF said sales growth was particularly notable in Central Asia and the Middle East. To further beef up its presence in those markets, the company set up a new subsidiary in Uzbekistan last May and another one in Kazakhstan in December.

XXF’s expansion strategy, which is sharply eroding its profitability, will only pay off if it can scale its car selling business substantially. And that’s a big “if.” By comparison, among its direct competitors, Yixin (2858.HK) is focusing on improving margins through technology-driven products like software as a service (SaaS). As a result, Yixin’s gross profit increased far faster than its 17% revenue growth last year, lifting its net profit by 48% and its adjusted profit, which also excludes share-based compensation, by a third.

XXF is also looking to use technology to boost efficiency, doubling its number of “digital employees” to 200 by the end of 2025 from a year earlier. Moreover, late last year, it created a subsidiary dedicated to smart mobility services and formed partnerships with autonomous delivery firms. These new services may become significant revenue contributors one day. But for now, at least, they only represent nascent businesses with an uncertain future.

Not surprisingly, XXF shares have dropped nearly 10% since it reported its latest results last week. They still trade above their IPO price in 2023, fetching a price-to-earnings (P/E) ratio of nearly 50, far higher than 12 for Yixin. But the big gap is largely because XXF has a much smaller profit base, suggesting its stock has room to fall if the company fails to halt its margin erosion.

XXF’s ability to pivot to car sales and exports to keep growing in a tough Chinese auto market is commendable. But the concurrent margin erosion is more worrisome, and will only make the move worthwhile if it can quickly build enough scale for that part of the business. The case is similar for its other new ventures, which have higher margins but are in early stages. Failure on either front will only make XXF another case study of the pain that comes with growth at any cost in a hyper-competitive market.

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The bitcoin miner took a series of major write-offs last year, many in the fourth quarter, and received some major new investment to shore up its finances heading into a new chapter

Key Takeaways:

• Cango recorded a $622 million loss last year, much of that from write-downs and other charges, but remained EBITDA positive for the period
• The company has validated and is now preparing to scale up a new business that converts idle bitcoin mining space to use for high-performance AI computing

By Doug Young

When the history books are written, the end of 2025 and beginning of 2026 are likely to be remembered as a pivotal time for Cango Inc. (CANG.US). If current trends continue, history will show that’s when the company began to sharply scale back its year-old bitcoin mining business and race full throttle into a newer, more stable business providing high-performance computing (HPC) services for AI companies.

That newer business has taken some key steps forward lately, including the establishment of a U.S.-based subsidiary led by an industry veteran experienced in the type of distributed computing that will become Cango’s new focus. The company said it has also validated a “plug-and-play” model that allows for quick conversion of former bitcoin mining space into capacity usable for HPC clients, many of those smaller businesses running AI applications.

Cango discussed such a move as early as the middle of last year, back when bitcoin was still trading near record highs. But back then it portrayed the shift as more gradual, with bitcoin mining and HPC services serving as the company’s dual engines.

Fast forward to the present, when Cango’s latest quarterly report for the fourth quarter of 2025 shows the transformation has taken on sudden urgency, as the company shores up its balance sheet to prepare for its new chapter. That financial cleanup became necessary following a plunge that saw Cango’s bitcoin holdings lose half of their value in a matter of months, as the cryptocurrency tumbled from a record high of about $124,000 last October to a trough of about $63,000 in February.

Cango revealed the extent of its internal cash-crunch in its latest report, and detailed steps it took to strengthen its balance sheet – most notably by selling down more than half of its bitcoin holdings in February and continuing to sell more after that.

“To support the next stage of Cango's strategic transformation from pure-play bitcoin mining to global AI and high-performance computing infrastructure, the company has updated its bitcoin treasury policy to focus on optimizing liquidity, capital efficiency, and long-term shareholder value,” the company said in its monthly bitcoin mining results for February released last week. “Consistent with this framework, Cango intends to utilize liquidity from its bitcoin treasury for operational expenses and select strategic initiatives.”

Bitcoin prices have rebounded a bit in the last few weeks, with the cryptocurrency now trading at around $75,000. But even at that level, the cost of mining an individual bitcoin for Cango – which spent more than $100,000 on an all-in basis for each coin it mined during the fourth quarter – still far exceeds the currency’s latest value.

The latest comments by company executives make it clear that Cango intends to downplay the bitcoin mining business going forward and focus on developing its young HPC business. It plans to do that initially using an asset-light model taking advantage of space at third-party cryptocurrency farms around the world. Such facilities already contain key infrastructure needed for high-performance computing, including electricity sources for power-hungry computers needed to mine bitcoins and also run a new generation of AI applications.

Bolstering its balance sheet

The start of this year was a critical time for Cango, as the value of its core bitcoin holdings that are its main asset rapidly evaporated. Rather than sit back and wait to see where the market might go, the company moved quickly and sold 4,451 bitcoins over Feb. 6-7, representing more than half of the 7,474.6 in its treasury at the end of January. The company’s latest monthly report showed it had just 3,313.4 bitcoins in its treasury at the end of February – including 454.83 mined during the month – indicating it was continuing to sell down its holdings.

It has used funds raised from the sales, including $305 million raised over Feb. 7-8, to pay down its long-term debt, which stood at $557.6 million at the end of last year, but is now presumably at less than half that level. The company also took multiple charges in the fourth quarter related to its bitcoin business, including impairment losses on its mining machines and changes in the fair value of receivables for bitcoin collateral. Additionally, it booked a major loss during the year related to its original car-trading business, which it sold last May to focus on its newer business lines.

All that resulted in a $622 million loss for the company last year, though it remained positive on an earnings before interest, taxes, depreciation and amortization (EBITDA) basis, which is a better indicator of cash flow. The write-downs and other efforts to shore up its finances also reduced Cango’s cash and short-term investments to $41.2 million at the end of last year from $130 million a year earlier.

“Recognizing further price pressure heading into 2026, we took prudent action,” said CEO Yu Peng. “We reduced debt exposure, recovered liquidity, and began phasing out inefficient capacity. These steps have strengthened our balance sheet and enhanced operational efficiency as we enter the new year.”

Cango also got some help from its major stakeholders last month, when its chairman and another one of its directors agreed to collectively invest a fresh $65 million in the company, and its largest investor agreed to provide an additional $10.5 million.

The company reported fourth-quarter revenue of $179.5 million, bringing its total revenue for the year to $688.1 million, the vast majority of that from its bitcoin mining business. But notably, its fourth-quarter revenue was down about 20% quarter-on-quarter, as the company began to idle capacity due to falling bitcoin prices. Cango also detailed steps it’s taking to reduce its operational costs to save money for its next chapter.

Its deleveraging has given Cango more breathing room to make the necessary investments for its longer-term plan to ramp up its HPC business. In that direction, it set up a new wholly owned subsidiary, EcoHash, earlier this year to spearhead its HPC development. And it hired Jack Jin, a former senior operations executive at online meeting giant Zoom Communications, to lead the unit’s technical development.

“Leveraging our accumulated experience in large-scale deployment and management of distributed computing infrastructure, as well as our broadly partnered global energy network of bitcoin mining sites, we will launch standardized, modular AI computing nodes, aiming to provide highly flexible and cost-effective solutions for long-tail AI inference demand,” said Yu.

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The online brokerage gained significant traction in its new markets in the fourth quarter, just three years after hitting a regulatory brick wall in its original home China market

Key Takeaways:

• Online brokerage Futu’s revenue jumped 45% year-on-year, and its net profit surged 80% in the fourth quarter of 2025
• The company’s overseas moomoo brand accounts for 55% of total funded accounts, with Malaysia becoming a major growth driver just three years after Futu entered the market

By Warren Yang

Many Chinese companies aspire to be global players, even though few manage to make that transition despite valiant efforts. Futu Holdings Ltd. (FUTU.US) is clearly an outlier from the much larger group of companies whose global dreams failed to take off. The online broker’s overseas success, highlighted in its latest quarterly report, is all the more remarkable given its global drive was largely the result of a brief existential crisis sparked by a regulatory nightmare in its home China market.

Futu’s latest blockbuster results, delivered last Thursday for the fourth quarter of last year, capped a year of retail trading frenzy that led its client base to swell and its own stock to take off. The company’s revenue jumped 45.3% year-on-year to HK$6.44 billion ($827 million), smashing past analysts’ estimates. Its net profit jumped by an even more impressive 80% to HK$3.4 billion. For the whole of 2025, the online broker’s revenue rose 68% to HK$22.8 billion, while its net profit more than doubled to HK$11.3 billion.

Futu is roaring back just three years after a crackdown by the China Securities Regulatory Commission (CSRC) threw its future into doubt. At the end of 2022, the regulator barred Futu, along with rival UP Fintech (TIGR.US), from registering new user accounts in China. Both companies specialize in cross-border trading, initially focusing on U.S. and Hong Kong-listed stocks. But the regulator said both were operating illegally by allowing their Mainland customers to make cross-border trades without a required brokerage license.

The ban wasn’t completely unexpected due to earlier signals from the regulator, and Futu had already started expanding overseas before the bombshell hit. Still, the episode was a huge blow to the company as it relied heavily on its China business at that time. Its primary growth engine instantly stalled, and its planned Hong Kong secondary listing was also put on ice.

Flourishing in Asia

Fast forward three years to today, and the company’s financial performance suggests that while it has lost the Mainland China market, it’s flourishing elsewhere in Asia.

Details that Futu management provided on its earnings call show how the international shift has quickly gained traction and now accounts for the majority of the company’s business. Reflecting that shift, Futu has moved its home to Hong Kong, which has its own financial system and stock market separate from the Mainland, shifting from its original headquarters across the border in the boomtown of Shenzhen.

Clients for its overseas moomoo brand now account for 55% of its total funded accounts. Futu is doing particularly well in Malaysia, in addition to its main market of Hong Kong, CFO Arthur Chen said on the earnings call. Those two markets accounted for more than 50% of Futu’s new customer additions in the fourth quarter, with the rest coming from its other markets including Singapore and Japan. Futu only entered Malaysia in 2023, later than its other Asian markets, showing that it can easily export and rapidly scale its formula of combining slick technology with social trading features.

The geographic diversification has significantly reduced regulatory risks in China for Futu. And the expansion of the company’s customer base and offerings has also made it less vulnerable to a prolonged slump in Chinese stocks that only started to ease last year.

Total trading volume on Fufu’s platform hit a record HK$3.98 trillion in the fourth quarter, up 38% year-on-year, even though Hong Kong stock turnover decreased. U.S. stocks accounted for the bulk of that figure, as investors dived into companies related to AI. Yet American depositary shares (ADS) of Chinese companies made up less than 10% of the company’s U.S. stock trading volume, Chen said, showing Futu continues to shed its China roots.

Wealth management services are becoming another big growth driver for Futu, with customer assets for that business expanding fast. To attract new clients in overseas markets, the company has been rolling out localized products, like Shariah-compliant gold tracker funds in Malaysia and domestic equity funds in Singapore.

In addition to Hong Kong, Malaysia and Singapore, Futu currently offers service outside China in Japan, the U.S., Canada, Australia and New Zealand. But it isn’t stopping there, and may expand into at least one more new market in Asia, Chen said on the call.

Hong Kong IPO dominance

Hong Kong, where one in every two adults uses Futu’s products, remains a core market for the company. It’s especially formidable in the IPO segment, accounting for nearly half of total subscriptions from local retail investors in 2025. Futu said it also provided investment banking services for more than half of the companies that went public in Hong Kong during the year.

The company also owns Hong Kong virtual lender Airstar Bank, an asset that can create a range of synergies. For example, the bank has launched mutual funds and insurance products within Futu’s app, with more wealth management offerings planned. Futu management envisions Airstar’s long-term revenue coming primarily from fee-based wealth management services, rather than traditional lending, a model that fits neatly with the company’s strengths.

Still, Hong Kong is a hyper-competitive, mature market, so it makes sense for Futu to continue looking for growth elsewhere as well. That overseas expansion ambition contains many hurdles, from the need to win necessary licenses to competition with established local players. And while Futu trumpets its success in certain markets like Hong Kong, Malaysia and Singapore, it’s notably silent on many of the others, suggesting it hasn’t made much inroads in many of those. But Futu’s relatively quick growth overseas suggests it has discovered a strong formula for success that’s relatively easy to replicate across markets.

Futu shares have gained about 28% in the past year to trade at a price-to-earnings (P/E) ratio of 14.6, well above 8.9 for UP Fintech, whose stock has lost 8% over that time. While UP Fintech initially focused on Singapore, Futu appears to be beating it to other new markets outside Greater China, something investors clearly appreciate.

Now, the question is whether Futu can sustain its current momentum by balancing entry into new markets with growth in existing ones, all while operating profitably. That’s always a big challenge for any expanding company, but Futu’s achievements so far look rather promising.

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The loan facilitator revealed previously undisclosed transactions and changed its CEO as it tries to resume trading of its Hong Kong shares after a year-long suspension

Key Takeaways:

• Lufax disclosed previously hidden transactions, admitted to breaching listing rules and issued restated profits for two years as it tries to move beyond an accounting scandal
• The company reported an annual net loss in its long-delayed 2024 annual report as its core business of channeling loans to small business owners shrank

By Warren Yang

Lufax Holding Ltd. (LU.US; 6623.HK) has been busy taking steps to shake free from an accounting scandal that has haunted it for the past year. But the online loan facilitator may emerge from that scandal only to face a much bigger issue that it can’t do much to overcome, namely, a weak economic reality that is hurting its core lending business.

In a flurry of filings to the Hong Kong Stock Exchange over the last week and a half, much of that over China’s long Lunar New Year holiday, the Ping An Group-backed company provided details of previously undisclosed transactions that are the source of its current predicament. It also admitted to breaking listing rules and restated two years of financial results. That series of actions culminated in the announcement of the departure of its longtime CEO last Tuesday.

Lufax’s Hong Kong-listed shares have been suspended since January last year after its auditor at the time, PricewaterhouseCoopers (PwC), raised concerns about potentially problematic, unreported transactions that led to a parting of ways between the two sides. Its U.S. shares have continued trading over that period, and initially fell, but later rebounded and currently trade roughly unchanged from pre-scandal levels. The latest disclosures and leadership overhaul, which followed an audit by PwC successor EY, appear to be part of a broader series of behind-the-scenes efforts to put its house in order and facilitate a trading resumption for its Hong Kong stock. 

But such fixes can’t do much to address a more fundamental underlying problem. Lufax isn’t only grappling with governance malpractice issues, but also with a business model that looks increasingly fragile in today's China, as its freshly issued 2024 annual report shows in new detail. The company made a loss that year as its business shrank, reflecting general challenges confronting lenders as China’s economic slump lingers.

The transactions that Lufax previously hid made things worse — and their magnitude won’t do anything to help the company gain investor confidence if and when the Hong Kong trading suspension is finally lifted.  

For starters, in a Feb. 15 filing, Lufax revealed that it purchased a total of 59 wealth management products with an aggregate principal amount of more than 45 billion yuan ($6.5 billion) from June 2023 to December last year from various financial institutions, including military-affiliated Avic Trust, Bank of Communications, China International Capital Corp. (CICC), Citic Bank, China Minsheng Bank, Huatai Securities and Huaxia Bank.

The company now says some of these transactions should have been publicly disclosed due to their large size. Moreover, it admitted that it failed to seek shareholder approval for subscriptions to four of the wealth management products, totaling 2.1 billion yuan.

Complex transactions

Amassing a portfolio of these wealth management products without telling investors is a bad enough governance failure, but at least it didn’t affect the company’s bottom line. In what looks like a more serious violation, Lufax also concocted undisclosed complex related-party transactions that affected its financial statements.

From May 2023 to January 2024, some of the company’s subsidiaries and affiliates bought assets from related parties through trusts. From an unspecified month in 2022 to January 2023, Lufax also purchased non-performing assets from related parties by providing loans to an entity. Further, the company failed to consolidate three entities it effectively controls in its financial statements and disclose transactions involving them. 

Lufax restated its financial results for 2022 and 2023 to reflect changes in the values of assets involved in these dealings. As a result, its net profit for 2022 was about 10% below what it originally reported, while it was about 8% lower for 2023. The company hasn’t released a quarterly financial report since the third quarter of 2024, though it will likely need to issue an annual report for 2025 in the next few months to comply with Hong Kong listing rules.

Now that the accounting cleanup appears to be complete, Lufax will have to switch its focus to reviving growth under Ji Xiang, who is set to replace current CEO Yong Suk Cho from April. While Cho had a long career as a banker, with stints at Citibank and HSBC, Ji spent more than a decade at business consulting giant McKinsey, most recently as global managing partner overseeing the firm’s Asia retail banking business. That deep consulting background may come in handy for an operational overhaul, something Lufax could use as it seeks to emerge from the scandal. 

An existential question for Lufax going forward stems from its traditional focus on small businesses, a cohort that is particularly vulnerable in China's sputtering post-pandemic recovery. The company is strategically pivoting toward lower-risk borrowers, but that’s a more limited pool that is targeted by many other lenders these days as well. Also, interest rates for safer loans tend to be lower, resulting in smaller fees for credit facilitation services and narrower interest margins for directly underwritten loans. This means it won’t be so easy for Lufax to boost its revenue or net profit as it attempts a rebound.   

Lufax’s New York-listed shares jumped last Tuesday, the first trading day following the barrage of disclosures, which suggests that investors are relieved that the end of its auditing saga may finally be in sight.

But the stock is still down by about 38% from its peak last October and trades at a distressed price-to-sales (P/S) ratio of less than 1. But the ratio for its peers isn’t much better, with FinVolution (FINV.US), another online loan facilitator, fetching a multiple that barely exceeds 1.

All this shows investors aren’t so upbeat about credit companies in the current economic climate in China. And Lufax needs to restore not only its business but also its reputation following its various accounting maneuvers that look aimed at inflating profits. Its new CEO is in for a big test.

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The company said that two of its directors will purchase an additional $65 million worth of its stock, a week after it sold more than half of its bitcoin holdings

Key Takeaways:

• Cango announced that two of its directors have agreed buy $65 million worth of its stock to help finance its accelerating move into distributed computing
• The company has been lowering its bitcoin mining activity amid a rapid decline in prices for the cryptocurrency

By Doug Young

Cango Inc. (CANG.US) received an important vote of confidence from two key backers on Thursday with its announcement of a major new investment, a week after it sold more than half of its bitcoin holdings and accelerated its move into computing management. The $65 million new investment, alongside an additional $10.5 million infusion from its largest stakeholder, will provide valuable capital for the company as it diversifies into distributed computing for AI clients to lessen its reliance on the volatile bitcoin market.

Cango largely abandoned its original business as a Chinese car trader over a year ago, and initially moved aggressively into bitcoin mining. In a campaign to diversify its business, the company announced plans last year for another move into high-performance distributed computing. It has now begun to accelerate that move, including the establishment of a new, U.S.-based company headed by an industry veteran who is already building up a team in the state of Texas, according to an announcement last week.

Cango originally adopted a “mine and hold” strategy for its bitcoin mining business, but abruptly shifted course last week with the sale of more than half of its holdings as the cryptocurrency plunged in value. It raised about $305 million through the sale of 4,451 bitcoins over the weekend of Feb. 7-8, compared with 7,474.6 in its treasury at the end of January, saying it would use the proceeds to repay a bitcoin-collateralized loan and strengthen its balance sheet.

Now, the company is further shoring up its finances with the latest fundraising from its non-executive Chairman Jin Xin, as well as board member Chang-Wei Chiu, who is chief investment officer of Antalpha Ventures, a Singaporean firm tied to Enduring Wealth Capital Ltd., Cango’s largest shareholder.

Under the newly announced investment, Jin will purchase 19.3 million of Cango’s Class A ordinary shares for $25.4 million through his company, Armada Network Ltd., according to the Thursday announcement. The investment will raise his stake to 4.7% of Cango’s shares and 2.6% of its voting power. Concurrently, Chiu will purchase about 30 million of Cango’s Class A shares for $39.6 million through his company, Fortune Peak Ltd. That purchase will boost his Cango stake to 12% of its outstanding shares and 6.7% of its voting rights.

At the same time, Cango announced the closing of a previously announced $10.5 million share sale that will boost Enduring Wealth Capital’s stake in the company to 4.71% from a previous 2.81%. But more importantly, the purchase involving Class B shares with super voting rights will give Enduring Wealth Capital 49.7% of Cango’s voting rights, just shy of a 50% majority and assuring its ability to control the company.

“The company intends to use the proceeds from the Class B investment and the proposed Class A investments to support its expansion into AI and computing infrastructure, while further strengthening its balance sheet,” Cango said.

Stock volatility

Cango’s stock initially soared in the months after announcing its move into bitcoin mining in November 2024. But since then it has given back all the gains, including an 18% decline over the last week, to trade roughly where it was before the shift from its Chinese car trading business. The company has been navigating a volatile bitcoin landscape where prices have fallen from a peak of around $124,000 per coin last October, to a trough of about $60,000 last week. Cango’s announced fundraising from its bitcoin sales implies it sold down its holdings at an average price of $68,524 per bitcoin. After the sale, it still held 3,645 bitcoins last week, according to a report in Coinbase, citing data from BitcoinTreasuries.

Even before the bitcoin volatility, Cango previously announced plans to complement its mining operation, with a current 50 EH/s of capacity, with the development of a related high-performance computing (HPC) business for AI users. Both bitcoin mining and HPC require very high levels of computing power and, consequently, are huge power consumers.

Cango plans to leverage its growing expertise in managing such complex operations at its mining facilities to offer similar services to other customers with similar needs. The biggest emerging group in that area is the growing number of companies using AI.

In its announcement last week, Cango outlined a three-stage plan to accelerate its move into high-performance computing, starting with a hybrid approach utilizing its leased space in mining centers on four continents as well as a facility it purchased in the U.S. state of Georgia. The company plans to deploy AI computing nodes across its more than 40 globally accessed sites to provide inference computing capacity to small and medium-sized businesses.

As part of the distributed computing initiative, Cango last week announced the establishment of EcoHash Technology, a wholly owned unit based in the U.S. city of Dallas, which is already assembling a team under the leadership of Jack Jin, a former senior operations executive at online meeting giant Zoom Communications. The company says the “plug and play” model it is developing has already completed feasibility verification through various demonstration projects, enabling the rapid deployment of AI edge computing nodes in traditional mining environments without large-scale infrastructure overhauls.

Over the medium term, Cango plans to develop and deploy a proprietary software platform to manage and integrate its distributed computing capacity. And over the long term, it plans to scale up its model to become a “mature global AI infrastructure platform.”

Cango says it is committed to continuing its bitcoin mining operation, though it has been scaling that back as mining costs rise above the latest bitcoin prices. Its monthly reports show the company scaled back the utilization rate of its mining capacity to 37.02 EH/s in January from 43.36 EH/s in December. Its average all-in cost for mining each bitcoin totaled $99,383 in last year’s third quarter, though the cost was a lower $81,072 after excluding amortization costs related to declining value of its mining machines. Still, both figures are well above current bitcoin prices, which now stand at around $65,000.

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The Hong Kong-based financier raised the fresh funds from investors including HSBC and Prudential as it seeks to expand in Southeast Asia

Key Takeaways:

• WeLab announced it raised $220 million through a sale of equity and debt in what it says was the largest fundraising for a digital bank last year
• A growing number of major financial institutions are backing the company, betting on the future of fast-evolving digital banking

By Warren Yang

Its name may not be familiar to stock investors, but digital bank WeLab is rapidly becoming a superstar among the very institutions it hopes to disrupt.

Last month, the Hong Kong-based company said it raised $220 million through an equity and debt sale, in what it says was the largest fundraising for a digital bank last year. WeLab, which calls itself “a leading pan-Asian fintech platform,” will use the funds for expansion in Southeast Asia and product development, as well as potential acquisitions.

Equally impressive as the big amount is WeLab’s investor list, which features big names like HSBC and Prudential, as well as sovereign-wealth fund Hong Kong Investment Corp. WeLab was founded in 2013 by Simon Loong, whose own resume includes more big banking names from his previous long stints at Citibank and Standard Chartered. Prior to the latest fundraising round, the company bagged $156 million in 2019 from institutions including state-owned banking titan China Construction Bank.

No valuation was given for the latest fundraising. But the company was already valued at $1 billion after the 2019 funding, and is probably worth much more by now after raising $1.75 billion over eight funding rounds to date, according to the Tracxn database.

WeLab’s fundraising record shows it’s rapidly attracting a wide range of major traditional financial institutions that are betting on the future of fast-evolving digital banking. Online lenders like WeLab are moving beyond their niche as sleek financial app operators to become full-scale, artificial intelligence (AI)-powered financial ecosystems.

WeLab is also one of a growing number of financial institutions using Hong Kong, a regional financial hub, as a strategic base to target both the Chinese and other Asian markets. It is among eight licensed digital banks in Hong Kong, alongside other players backed by such big names as Alibaba, Tencent, ICBC, JD.com, Standard Chartered, Ping An and Xiaomi, according to a list published last year by the Fintech News Network.

For WeLab and its digital banking peers, the most pressing question is whether they can generate returns that justify the investment required to run their capital-intensive banking operations, and mature into self-funded companies with sustainable profits. The expansion of WeLab’s investor base to encompass a who’s-who of the financial industry, with both Western and Chinese backers, certainly looks like a strong vote of confidence for the company.

That confidence isn’t without foundation. As the largest digital bank by revenue in Hong Kong, WeLab broke even for the first time ever in December 2024 on a monthly basis, and then turned a profit for the first half of last year. Its revenue was also growing fast, by 70% year-on-year to HK$430 million ($60 million) in the first half of 2025, according to its latest financial report, which it released voluntarily. It boasted a “robust” capital adequacy ratio that exceeds 20% at the end of last June, well above the minimum required by Hong Kong.

One important caveat is that unlisted WeLab isn’t subject to the same reporting requirements as publicly traded companies. But its financial performance is quite notable for a fintech venture as many of its peers are still burning cash. The company’s decision to voluntarily disclose its financial results perhaps speaks to its own confidence about its ability to outperform its competitors.

WeLab runs a number of platforms, in addition to its namesake digital bank in Hong Kong. It also offers consumer loans specifically in Hong Kong via WeLand, and it operates the WeLab Digital loan facilitation platform for customers across the border in Mainland China. The company provides credit technology services for banks and institutions as well.

Geographic diversification

WeLab has also achieved some geographic diversification beyond Hong Kong and Mainland China by joining forces with one of the largest conglomerates in Indonesia. In 2022, WeLab and Astra Financial together acquired Bank Jasa with a plan to transform the brick-and-mortar lender into a digital-only one that targets individual “solopreneurs” like freelancers. The two partners wasted no time and made that conversion happen the following year.

The fact that WeLab prominently mentioned expansion in Southeast Asia in its latest fundraising announcement suggests that it may try to replicate its Indonesia partnership elsewhere in the region or pursue outright acquisitions to carve out a truly pan-Asian presence.

The company’s desire to become a regional player probably doesn’t require much explanation as it’s easy to see why the digital banking market in Asia has big potential. Fundamentally, the convenience of fast, hassle-free online financial services like WeLab’s is a welcome time saver for anyone loathing trips to physical bank branches, especially entrepreneurs working alone or with small teams.

And in vast developing economies like Indonesia, a lot of people still lack access to banking services, partly because there are too few banks compared to their big populations. Online banking solves this problem. That demand is expected to help the digital banking market in Asia more than double in size to $5.1 trillion by 2033 from 2024, as internet and smartphone penetration deepens, according to the Market Data Forecast.

Plus, lending in emerging markets like those in Southeast Asia is much more lucrative than in mature economies like Hong Kong because margins are higher. That means expansion across that region can help improve profitability.

At the same time, digital banks like WeLab offer their traditional financial sector backers exposure to the types of emerging services and business models that they may also hope to eventually copy. For HSBC, for example, its stake in WeLab can offer a close-up view of agile, cloud-native banking technology and an exclusively digital customer base, which can yield valuable knowledge that it can leverage for its own operations down the road. And all the better if the investment leads to financial gains.

But risks do exist for WeLab. Among other things, targeting individual borrowers is always a double-edged sword. Although margins on loans to them are typically higher than those for business customers, they are also often riskier. WeLab doesn’t disclose its non-performing loan ratio, unlike listed banks, so it’s hard to assess the quality of its loan book. But the figure is likely higher than traditional lenders focused on large companies.

Competition is bound to intensify too as Hong Kong awards more digital banking licenses and established financial institutions accelerate their own digitalization.

Still, if WeLab uses its fresh capital to step up expansion in high-growth markets in Southeast Asia while beefing up its technological capabilities, the company could turn itself into a model for others to follow as a profitable pan-Asian digital bank.

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“The big state-owned lenders in China are essentially ‘GDP banks’—they will do anything to boost the GDP numbers.”

Key Takeaways:

• Anta and TCL are leading a new wave of foreign acquisitions to offset a soft domestic consumer market
• China Merchants Bank’s profit growth has flattened as it prioritizes loan quality over aggressive expansion in a low interest rate environment

By Doug Young & Rene Vanguestaine

We are witnessing two diverging narratives in China’s corporate landscape that, upon closer inspection, stem from the same root cause: a sluggish post-Covid economy. On one front, major Chinese consumer brands are looking outward, resuming a trend of purchasing foreign assets to secure growth that’s currently hard to find at home. On the other, the nation’s banking sector — represented by its most commercially oriented player — is turning inward, tapping the brakes on growth to navigate a landscape of squeezed margins and cautious borrowers.

We see these trends crystallized in recent moves by TCL (1070.HK) and Anta Sports (2020.HK), as well as the latest financial results from China Merchants Bank (3968.HK; 600036.SH). While one sector is seeking to buy its way into new markets, the other is hunkering down to weather the domestic storm.

A return to global shopping

The first trend marks a resurgence of Chinese companies acquiring foreign brands, a strategy that was hot in the first decade of the 21st century — epitomized by Lenovo’s (0992.HK) purchase of the PC business of IBM — but had largely disappeared over the last decade after mixed results.

Two significant deals have brought this strategy back into focus. First, TV giant TCL has taken over the home entertainment division of Sony (6758.T), a Japanese legend that has lost some of its luster. The two sides announced a joint venture to manufacture and sell products under both the Sony and Bravia brands. Second, up-and-coming sportswear giant Anta has purchased a 29% stake in Germany’s Puma (PUM.DE) from the Pinault family, becoming the brand’s largest single shareholder.

We believe these acquisitions are driven by strategic necessity. The Pinault family’s portfolio has underperformed recently, and Puma has consistently trailed its German competitor Adidas (ADS.DE) and American giant Nike (NKE.US). Furthermore, new challengers are rising, such as On (ONON.US), which boasts the backing of former tennis world number one Roger Federer.

However, the primary driver for the Chinese buyers appears to be the domestic environment. As we all know, the consumer economy in China is not performing extremely well. We are now in the fourth year post-Covid, yet the expected substantial bounce-back has not materialized. Despite government announcements regarding measures to improve consumption, the sector remains subdued. For companies like Anta, which has done reasonably well with past foreign acquisitions, buying into a global brand is a way to push for growth and revenues overseas when Chinese consumers are unwilling to spend.

We expect this to be the beginning of a bandwagon effect. In China, when a business move looks economically viable, imitators often follow. We have already heard rumors of names like Luckin (LKNCY.US) potentially looking at assets like Costa Coffee. If the domestic market remains soft, this new wave of outbound M&A is likely just getting started.

A bellwether bank turns cautious

While consumer brands look abroad, the domestic financial reality is starkly illustrated by the latest figures from China Merchants Bank. Generally considered one of China’s best-run lenders and a barometer for the sector, the bank is based in Shenzhen and is far more commercial than its state-owned peers.

The bank reported that profit growth came to a virtual standstill last year, rising just 1.2%. Operating income was even flatter, rising by a scant 0.01%. Most telling was that net interest income rose just 2%, lagging well behind a 5.4% rise in its loan book. This discrepancy highlights how the bank’s interest margin is being squeezed by the low-interest-rate environment — a policy the government likely wants to maintain to stimulate the economy.

We view these numbers as a sign of prudent management rather than failure. The bank appears to be navigating uncertain times by being extremely cautious about which new borrowers it brings on board. Expanding the client base too aggressively in this environment could lower the quality of its loan book.

Remarkably, the bank’s non-performing loan (NPL) ratio remained below 1%. While we often take the NPL ratios of China’s big state-owned banks with a grain of salt — viewing them as "GDP banks" that follow political directives and may hesitate to report bad news — we place more trust in China Merchants Bank. Its low NPL ratio likely reflects a strategic decision to limit exposure rather than statistical manipulation. However, it’s worth noting that expanding a loan portfolio can artificially depress NPL ratios in the short term, so time will tell if these figures hold. Ultimately, both the aggressive acquisitions by Anta and TCL and the defensive posture by China Merchants Bank tell the same story: China’s domestic economy is sputtering, and companies are adapting their strategies — either by leaving the country to find sales or tightening their belts to survive the squeeze.

The provider of stablecoin trading and payment services has raised $200 million through a share sale to Fidelity

Key Takeaways:

• OSL has raised $200 million by selling shares to Fidelity, just six months after securing $300 million in the largest publicly disclosed share sale by a crypto firm at that time
• The Hong Kong-based company is building up stablecoin services as demand for such digital assets grows exponentially

By Warren Yang

In the Wild West of digital assets, stability is fast emerging as a precious commodity. OSL Group Ltd. (0863.HK) realizes that and is looking to sell investors on its ability to prosper by offering just that resource.

Last Thursday, the provider of stablecoin trading and payment services said it raised $200 million to fund its expansion, including acquisitions. The money came from asset management giant Fidelity, which already held a sizable stake in OSL before the latest fundraising, according to Tracxn. The move comes just six months after OSL secured an even greater $300 million in what was the largest publicly disclosed equity sale by a crypto sector company at that time.

The aggressive, back-to-back fundraisings point to a high-stakes land grab in one of finance's fastest-evolving frontiers. Demand for stablecoins, digital tokens pegged to steady real-world assets like the U.S. dollar, is growing exponentially as they become critical plumbing for the digital asset economy on two fronts.

Firstly, for the likes of traders and investors, converting volatile cryptocurrencies into dollar-backed tokens like stablecoins is essential in managing risks and liquidity. Institutional adoption of stablecoins is increasing, providing a powerful force for their growth. More than 80% of institutions across the globe are using or exploring stablecoins, according to a survey by EY and Coinbase published in March last year.

Secondly, stablecoins are becoming a vital tool for cross-border payments and remittances. By leveraging blockchain technology, stablecoins can facilitate cross-border transactions that are faster and cheaper than the traditional route through banking systems, particularly in emerging markets. So, it’s no wonder a growing number of businesses are accepting stablecoins, which means they are emerging as an increasingly popular real-world currency.

At the regulatory level, authorities are also increasingly providing growing clarity for crypto-related businesses by establishing licensing requirements. In 2020, OSL became the first firm to receive a license from Hong Kong’s Securities and Futures Commission to offer regulated brokerage and automated trading services for digital assets. Such regulatory frameworks allow licensed companies to build services within well-documented parameters, which can add stability and credibility to their operations.

Along the same lines, the development of legislation specifically for stablecoins is gaining momentum across major markets including the U.S. and Hong Kong, providing further fuel for the growth of those digital assets. Tellingly, Fidelity is set to launch its own stablecoin soon.

OSL is also strategically based in Hong Kong, where stablecoin and other crypto services are legal, even as similar activity is banned across the border in Mainland China. That means OSL is well placed to benefit not only from regional stablecoin trading in Asia, but also from a growing number of Mainland Chinese companies setting up Hong Kong units to engage in the business.

All that translates to a solid growth foundation for OSL after abandoning its older advertising and park management businesses in 2022 and 2023 to go all in on digital assets. In the first half of last year, OSL’s revenue jumped 58% year-on-year to HK$195.4 million ($25 million) as it gained traction in its new area.

Over-the-counter trading services are OSL’s main business, and they continued to account for the lion’s share of its revenue on the back of a 200% increase in transaction volume in the first half of last year. But the company’s real standout performer was OSL Pay, a platform that converts real country-backed currencies to stablecoins, and vice versa. That was launched just last April, and contributed a remarkable 28.6% of the company’s total revenue in the first half of last year, primarily from Europe.

Full expansion mode

OSL is in full expansion mode as it pursues its new direction, with its headcount more than doubling to 568 in first half of last year. The company isn’t just growing in size — it’s also on a campaign to collect licenses to operate stablecoin businesses in other global markets, often through acquisitions, a process essential to building an international customer base. In the first half of last year, OSL expanded its license portfolio to a number of new geographies, including Italy, Bermuda and Indonesia.

OSL was also busy rolling out new products, including StableX for compliant stablecoin issuance and Tokenworks for real-world asset tokenization. Its upcoming OSL BizPay is aimed at offering stablecoin payment services specifically for corporations.

So for investors, the thesis is clear: OSL is trying to position itself as part of the regulated backbone for the digital asset economy by providing services related to steadier, utility-like payment infrastructure, steering clear of the high volatility for most cryptocurrencies. And its recent fundraising spree suggests that investors are buying into its story.

“This financing round will allow us to welcome more like-minded strategic and long-term investors,” OSL CFO Ivan Wong said in the company’s announcement of its latest equity sale. “Beyond strengthening our capital base and diversifying our shareholder structure, these funds will enable us to seize timely opportunities to acquire licensed trading and payment entities worldwide, further solidifying our first-mover advantage as we advance our compliance-driven global strategy."

The question now is whether the company can translate its heavy investment into durable, profitable growth. In the first half of last year, its loss from continuing operations more than doubled from a year earlier as operating expenses swelled. Also, juggling regulatory compliance in different global markets and integrating acquired companies may be easier said than done. Moreover, OSL will face increasing competition, not only from agile startups but also deep-pocketed traditional financial institutions entering the crypto space.

Last but not least, there’s also the big question mark hanging over stablecoins, namely, whether they’re really as stable as their name implies. One earlier stablecoin, TerraUSD, made headlines with its spectacular crash that wiped out most of its value in just days in 2022.

The $500 million that OSL raised in the past year, while substantial, may prove a mere down payment in a long battle. The promised payoff — a profitable, scaled global payments network — remains years away, assuming OSL can execute everything well and stablecoins gain traction.

OSL shares have slid since its latest fundraising announcement, probably due to the equity dilution and large discount the new shares were sold for. Even so, the stock still trades at a price-to-sales (P/S) ratio of about 24, well above 7 for top U.S. crypto exchange, Coinbase Global (COIN.US), although the latter has a much larger revenue base.

The appeal of stablecoins is quite clear. And OSL’s strategy to bet its growth on the digital asset makes sense as well. But relentless growth isn’t worth much without profits, a problem OSL will need to fix in the near- to medium-term to keep investors interested in its stablecoin story.

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Operating income growth for the bank, considered one of the most market-oriented among China’s big state-run lenders, came to a standstill in 2025

Key Takeaways:

• China Merchants Bank’s operating income increased by just 0.01% last year, while its net profit grew by an only slightly better 1.2%
• The results show that growth is stalling in a slowing Chinese economy for the high-margin retail products that give the bank its competitive edge

By Warren Yang

In the world of Chinese banking, China Merchants Bank Co. Ltd. (3968.HK; 600036.SH) has long been an innovator, charting a course of premium growth through superior retail banking and wealth management services. Unlike its national rivals, mostly based in Beijing, the lender harkens from the southern boomtown of Shenzhen, distancing it from the policy-oriented lending of most of its peers. But a preliminary version of the bank’s latest annual results shows that this outlier can’t escape the gravitational pull of a slowing economy that is weighing on everyone.

In 2025, growth in China Merchants Bank’s operating income, effectively its revenue, came to a virtual halt, rising a mere 0.01% year-on-year to 337.5 billion yuan ($48 billion), according to the preliminary results released last Friday. The lender managed to grow its net profit by a slightly bigger but still unimpressive 1.2% to 150.2 billion yuan.

A small silver lining may be that things appeared to pick up in the second half of last year, since the bank’s operating income actually shrank year-on-year in the first half and its net profit rose by just 0.25% during that time. But regardless, China Merchants Bank’s annual report card probably won’t impress many.

This performance is a stark departure from industry-leading earnings growth that China Merchants Bank pulled off in the past. As recently as 2021, when China was still battling Covid-19 outbreaks with occasional lockdowns, the joint-stock commercial lender’s operating income grew 14%, and its net profit jumped 23%, the fastest pace in six years, outperforming state-owned banking titans. 

During its heyday, China Merchants Bank’s growth came from two main sources: a high-quality retail loan book that commanded better interest margins than its peers, and a booming fee-based business encompassing wealth management, credit card and investment banking services.

But these same profit drivers are now making China Merchants Bank more vulnerable to China’s prolonged economic downturn than its state-owned rivals that focus heavily on lending to large state-owned companies.

China Merchants Bank’s net interest income increased only by an estimated 2%, according to its preliminary results, which don’t include a specific figure for the item but provide a breakdown for non-interest revenue. That lags a 5.4% expansion of its loan book. The sluggishness of the bank’s lending business reveals two problems it’s facing.

For starters, demand for its loans isn’t what it used to be. Affluent urban households, China Merchants Bank’s core clientele, are deleveraging, postponing major purchases and refraining from borrowing in the current climate of economic uncertainty. As a result, boosting loans is becoming tougher for the lender.

And the Chinese central bank’s years-long efforts to stimulate the economy through interest rate cuts are weighing on net interest margins for all banks. This is hitting China Merchants Bank particularly hard because its lending strategy revolves around high-margin retail products. The significant gap between the growth rate for its loan book and slower growth for its net interest income last year clearly illustrates the margin pressure.

At the same time, the fall in China Merchants Bank’s non-interest income last year suggests that demand for its wealth management services, its biggest source of fee income, diminished as its customers increasingly became risk averse and opted to park more money in their savings accounts instead of investing in products with higher potential yields. Reflecting that, China Merchants Bank’s deposits swelled 8% last year compared with 2024.

Defensive triumph

Life isn’t particularly great either for China’s "Big Four" state-owned banks — led by ICBC (1398.HK; 601398.SH). But those more policy-oriented lenders all posted faster revenue growth than China Merchants Bank in the first nine months of last year. Their business may not be so exciting but is steadier as their main role is to provide stability for the economy by funding large national projects and channeling credit to big state-owned enterprises, acting as conduits for monetary policy.

One bright spot in China Merchants Bank’s latest results is its superb asset quality. Its non-performing loan (NPL) ratio remained below 1% at the end of last year, well below the sector-wide level and figures for the Big Four banks.

This shows China Merchants Bank is managing risks well, focusing on high-quality borrowers, instead of recklessly pursuing business growth. But this achievement isn’t something to wholeheartedly celebrate as it’s more of a defensive triumph that won’t do anything to boost its profits or return the bank to its former glory.

Obviously, China Merchants Bank’s management is not sitting idle. In the bank’s midyear report, it outlined a strategy focused on deepening its "value creation" through the retail banking ecosystem and accelerating digitalization. The goal is to leverage its well-regarded customer service and technology platform to increase client stickiness and cross-selling.

But this tactic also looks rather defensive as it’s essentially about protecting the existing customer base and optimizing efficiency rather than discovering new, high-growth frontiers.

There could be more aggressive options. For example, China Merchants Bank could double down on investment banking to boost its fee income, particularly to take advantage of a wave of corporate restructuring now happening in China. Or it could leverage its technological capabilities to create new digital finance products that can appeal to a broader range of borrowers. Significant overseas expansion is yet another possibility. But such initiatives would require more risk-taking and could do more harm than good if not executed properly.

China Merchants Bank shares still gained about 1.7% in the two trading days after the 2025 preliminary results release, slightly outpacing a 1.4% gain in the Hang Seng Index. They trade at a trailing price-to-earnings (P/E) ratio of 7.3, higher than 5.6 for ICBC. Perhaps investors like the fact that China Merchants Bank managed to increase its net profit, albeit modestly, despite flat revenue growth, which probably owed to cost cutting. At the end of the day, China Merchants Bank remains superior in turning shareholder money into profit, with a return on equity (ROE) of about 12%, versus 9% for ICBC.

But the gap is narrowing, and the question is whether China Merchants Bank can reignite growth to maintain its valuation edge over its more policy-oriented national rivals. As things stand now, a return to the bank’s juicy expansion of earlier years when China’s economy was booming seems like a tall order.

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“You can also go play in Macao with your money. You'll get the same odds as investing in a state-owned bank.”

Key Takeaways:

• Meta’s acquisition of AI startup Manus explicitly excludes Manus’ Chinese operations, signaling a trend of Chinese entrepreneurs moving to Singapore
• A local government’s decision to buy Weihai Bank shares at a premium rather than a discount is aimed at maintaining confidence in the lender

By Doug Young & Rene Vanguestaine

In the latest edition of China Inc., we examine a massive acquisition by a global tech giant that explicitly excludes Chinese assets, alongside a peculiar bailout of a regional lender in Northeastern Shandong province. On one side, we see highflying tech entrepreneurs maneuvering to exit the Chinese regulatory sphere; on the other, we see a regional bank inextricably bound to local government policy, regardless of market logic.

The great decoupling: Meta and Manus

The big business headline last week was Meta’s (META.US) decision to purchase AI company Manus in a deal valuing the startup at between $2 billion and $3 billion. Manus made waves last March by unveiling what it described as the world’s first general AI agent — a digital assistant capable of performing multiple tasks across various platforms.

However, the deal comes with a significant twist: Meta does not want any of Manus’ Chinese operations, nor will the company have any Chinese ownership post-transaction. While Manus was originally based in both Beijing and Singapore, it is now officially headquartered only in Singapore.

We believe this separation makes perfect sense for the Facebook parent. Meta is essentially unable to operate any of its products — be it Instagram or Facebook — within China. Acquiring a domestic Chinese business would likely only result in that division being banned by the government, mirroring the fate of other foreign internet services.

This move by Manus is part of a broader trend of Chinese tech companies moving their headquarters to Singapore, similar to the path taken by fast-fashion giant Shein. However, unlike Shein, which retains a vast supply chain in China, Manus appears to be cutting ties more thoroughly. We view this as a clear signal that Chinese entrepreneurs are increasingly looking to build successful businesses outside the Mainland to avoid perceived heavy-handed regulation, oversight or control. This exodus mirrors the crypto industry, where companies were forced to relocate to Singapore or beyond after Beijing banned the sector.

We expect to see more entrepreneurs following this type of “success story” as company founders witness the wealth generated by Manus’ exit and its ability to get paid outside of China.

However, the deal is not yet closed. We suspect Beijing may try to interfere. The Chinese government has made a concerted effort to develop advanced technology, and losing a successful AI business is not in its interest. Until the transaction closes, Manus still has Chinese shareholders and business operations, characteristics the government could seize upon to have a say in the approval process.

Local government pays premium to prop up a regional lender

Turning to the financial sector, we look at the latest in a growing string of bailouts for regional lenders. Weihai Bank (9677.HK), located in the coastal city of Weihai in Northeastern Shandong province, announced a 1 billion yuan ($140 million) infusion from an investment vehicle attached to the local government.

In a move that defies standard market logic, the government is buying newly issued Weihai Bank stock at a premium to its latest closing price. Typically, such cash-raising efforts occur at a discount.

We believe this unusual pricing is less about economics and more about confidence. State-owned enterprises (SOEs) and government-owned banks are primarily instruments of government policy. In the post-Covid economic slowdown, banks like Weihai Bank have likely been strongly encouraged to lend to local companies to support the provincial economy, regardless of a borrowers' health. This has created a vicious cycle where a bank’s assets grow, but its profitability stagnates due to non-performing loans.

By injecting equity at a premium, the local government is improving the bank's Tier 1 capital ratio while sending a powerful message to depositors in Shandong: The bank has the government's backing. This is a strategic move to prevent panic and stop a potential run on the bank. For investors, however, this underscores the risks of the sector. As we noted, investing in state-owned banks is akin to gambling in Macao. Third-party investors will always find themselves low in the pecking order behind government policy objectives. While these entities may offer yields — as the government mandates dividend payments — they are not designed for shareholder growth. Whether it’s banks, oil companies, or airlines, the primary mandate of Chinese SOEs is to execute government policy, leaving independent investors in for a bumpy ride.

The investment bank will buy two portfolios of nonperforming personal loans as it continues to recover from a crisis with the abrupt departure of its high-powered founder two years ago

Key Takeaways:

• China Renaissance will buy two portfolios of impaired personal loans from subsidiaries of online loan facilitator Qfin for 308 million yuan
• The move comes as China’s economic slump yields a growing pile of bad debt, creating potentially lucrative – but also risky – opportunities for private sector investors

By Warren Yang

Growing stress among Chinese borrowers is creating potentially lucrative opportunities for private sector investors. Aiming to make money from the nation’s growing bad debt, China Renaissance Holdings Ltd. (1911.HK) is among those trying their luck in a new role as bill collectors. But bad debt recovery is no easy feat, and China Renaissance, itself still recovering from a scandal that plunged it into chaos two years ago, may need a lot of luck to make good out of bad in its latest endeavor.

Last Wednesday, the company said it will pay308 million yuan ($44 million) for two portfolios of nonperforming personal loans from Fuzhou Qifu Financing Guarantee and Fuzhou Qifu Online Microcredit, subsidiaries of private online loan facilitator Qfin Holdings (QFIN.US; 3660.HK). Fuzhou Qifu Financing Guarantee provides payment guarantee services for Qfin’s lending partners, while Fuzhou Qifu Online Microcredit directly underwrites loans.

The biggest appeal of bad debt investments is that returns can be juicy, as they are often sold by original lenders at deep discounts to their face values. China Renaissance is paying just 277 million yuan for loans worth 6.7 billion yuan in principal value from Fuzhou Qifu Financing Guarantee, and 31 million yuan for debt totaling 752 million yuan from Fuzhou Qifu Online Microcredit. Given the heavy discounts, the upside for potential profits is massive.

“The acquisitions represent a good opportunity for the group, as the market continues to recover, the group expects the recovery of relevant debts will improve over time, and the group is confident that a significant portion of the debts are able to be recovered over time, which is expected to result in attractive rate of investment returns to the group,” China Renaissance said.

But the buyers of bad loans make money only if they recover the funds. And that’s a big “if,” as getting money back from distressed borrowers is tough, even for seasoned bill collectors, not to mention for inexperienced ones like China Renaissance.

The sour loans that the company is buying are long overdue, which makes their recoverability look difficult. The loans from Fuzhou Qifu Financing Guarantee are overdue by an average of more than two years, and those from Fuzhou Qifu Online Microcredit have been delinquent for an average of more than 400 days. Moreover, all of them are unsecured, meaning China Renaissance has no collateral to collect if it can’t recover the loans.

While the company specializes in investment banking and asset management services, it does have some experience with delinquent borrowers. For example, in 2022, China Renaissance provided a $25 million loan to an unrelated institution named Wallaby Medical Holding. The loan later became problematic, prompting China Renaissance to write it down substantially and book an impairment charge. The company settled the loan in the first half of last year, probably at a loss, after a 12-month extension of its maturity date.

Pile of bad loans

But dealing with just a handful of borrowers is one thing. Going after a group of hundreds of thousands is quite another, which China Renaissance will need to do as it tries to recover some of the bad debt it’s buying. Compounding matters, the consumers who use non-bank lending companies like Qfin are often relatively risky borrowers, and those who have defaulted are the weakest within that group. So, squeezing money out of them won’t be easy.

The type of bad debt China Renaissance is seeking to profit from is likely to keep growing as China’s economic slowdown drags on. Although officially reported nonperforming loan (NPL) ratios are still well below alarming levels, many believe that the reported figures are artificially low as lenders find ways to delay classifying troubled loans as NPLs. Regardless of how they handle loan delinquencies, banks are under increasing pressure to clean up their balance sheets, which creates a booming market for distressed debt buyers.

To prevent stress among struggling state-owned firms from crippling the entire economy, China created four major asset management companies (AMCs) back in the late 1990s, tasking them with taking over NPLs from state-owned banks. Numerous regional AMCs have also been established in the last decade. But there’s too much bad debt for these state-backed institutions alone to absorb. Also, AMCs are beginning to struggle themselves because of growing impairment losses, eroding their capacity to acquire more bad loans.

That’s left an opening for private capital, especially for bad debt owed by non-public sector companies and individuals, which is generally not a focus for the AMCs. Foreign hedge funds and specialist distressed debt investors, such as Oaktree Capital and Bain Capital Credit, have been active in China for years. And they have been joined by domestic institutions like DCL Investments, China’s first private equity firm dedicated to distressed asset investments founded in 2015. These investors traditionally focused on business loans, banking on their expertise in valuing assets and corporate restructuring. But they have gravitated toward loans for individuals since the 2021 introduction of a pilot program that allows bulk transfers of personal NPLs.

China Renaissance is dabbling in distressed debt as it seeks to revive its fortunes after being rocked by the detention of its founder and chief rainmaker on suspicion of bribery in 2023. As part of its comeback efforts, the company last year also announced a plan to invest in Web 3.0, or a decentralized internet built on blockchain and crypto assets.

China Renaissance has been slowly clawing its way back from the 2023 crisis. Its financial performance in the first half of last year looked promising, as it returned to profitability, helped by a resurgence in Hong Kong IPOs. Its shares rose 16% in the week after announcing the bad debt investment plan, showing investors seem to like the new direction.

The stock now trades at a price-to-sales (P/S) ratio of 2.2, comparable to 2.5 for Hong Kong-listed shares in CICC (3908.HK; 601995.SH), generally considered China’s largest homegrown investment bank. Its ratio is also roughly double the 1.15 for Qfin, reflecting the pessimism many investors feel towards fintech lenders.

Investments in bad loans are generally a high-risk move. But China Renaissance is starting slowly, committing a relatively small amount of capital in this initial effort. A good return would give a nice boost to its financials, and could embolden it to try more. And even if it fails, the impact would be relatively limited.  

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The regional lender will sell new shares to a municipal investor in its hometown in Shandong province to shore up its capital cushion

Key Takeaways:

• Weihai Bank will raise about 1 billion yuan by selling new shares to an investment vehicle owned by municipal organizations in its hometown
• The move comes after the regional lender’s capital cushion weakened substantially in a slowing Chinese economy

By Warren Yang

Weihai Bank Co. Ltd. (9677.HK) has received a generous year-end gift from its municipal government, providing a needed boost to its balance sheet heading into the New Year. The mood around the regional lender, however, is far from festive.

On Christmas Eve, the Hong Kong-listed bank said that Caixin Asset, an investment vehicle owned by municipal organizations in its hometown of Weihai, in East China’s Shandong province, agreed to purchase about 328 million new shares for 3.29 yuan each. The price represented an 18% premium over the bank’s closing share price that day, and the deal will inject roughly 1 billion yuan ($140 million) into the bank’s coffers.

On the surface, the share sale may look like a vote of confidence, especially since the buyer is paying a premium, instead of the discounts that usually come with such new share issues. But in reality, it’s a financial lifeline. In effect, the bank is struggling to augment its balance sheet, and its hometown is writing a big check to improve its solvency.

Weihai Bank will use the new capital to shore up its dangerously depleted capital buffers, rather than for growth. The ratio of its core Tier 1 capital, essentially its equity, to its total risk-weighted assets, plummeted by nearly a full percentage point to 8.3% in the six months to June compared with a year earlier. This is a key measure of a bank’s financial health, so the sharp deterioration clearly is a red flag.

While Weihai Bank’s core Tier 1 capital ratio is still above the regulatory minimum, it pales in comparison to the 13.9% for sector giant ICBC (1398.HK; 600398.SH), one of China’s national “big four” lenders.

More alarmingly, Weihai Bank’s capital erosion occurred at a startling speed, putting intense pressure on its profitability. In the first half of 2025, its retained earnings, or profit reinvested into its business, stagnated while its risk-weighted assets, primarily loans, swelled by nearly 10%. This widening gap signals that the bank is expanding its loan portfolio without generating the necessary profit to support its business growth.

Weihai Bank’s predicament is a microcosm of the profound challenges facing China’s vast network of small regional banks, which lately are becoming a troublesome bunch for both investors and policymakers. The root cause is an economy mired in a prolonged slump. As China’s economic growth falters, both consumers and businesses are hesitant to take on new debt, drying up demand for loans.

For banks, this translates directly into difficulty boosting revenue from their core business. Simultaneously, the economic downturn increases the risk of defaults, forcing lenders to become more cautious about who they lend to. All of these factors create a vicious cycle. To protect asset quality, banks must tighten credit. But that further constrains their ability to generate new business, pressuring both their revenue and profits.

Compounding these problems is monetary policy. To stimulate the flagging economy, China’s central bank has little recourse but to keep cutting interest rates. This squeezes banks’ net interest margins, the difference between the interest they earn on loans and the interest they pay to depositors.

Weihai Bank’s net interest margin contracted to 1.65% in the first half of this year from 1.8% a year earlier. Consequently, even as its loan book grew about 9% year-on-year during the six-month period, its interest income rose by a far smaller 5.3%. With margins thinning, generating internal capital through earnings is becoming increasingly difficult. Turning to external private investors to raise funds is also not easy, as the sector’s well-publicized troubles have dampened market appetite for bank stocks.

This creates a headache for Beijing and the many provincial and municipal governments across China that control most of the nation’s lenders. A healthy banking system is the circulatory system of China’s vast economy, essential for funding its growth. The last thing these governments want is a crisis in the sector triggered by regional bank failures.

Underlying stress

In a financial system filled with underlying stress, the dominoes can fall quickly. The failure of even a single small bank can spark contagion, prompting depositors to flee from other weak institutions they believe could fall next. So, the onus falls on the government to preemptively support weak banks.

The Weihai Bank deal exemplifies this predicament, basically equating to a government-provided capital injection on very generous terms to the lender. But this rescue model is itself problematic. It highlights the deep entanglement of local governments, regional economies and their banks. Regional banks have historically been conduits for funding local government projects and favored businesses. When those borrowers struggle in an economic downturn, their balance sheets suffer directly.

And government-led bank bailouts, like this latest one for Weihai Bank, are often about protecting intertwined local interests as much as they are about ensuring financial stability. Furthermore, such interventions do little to address banks’ core operational deficiencies. They are a stopgap solution, not a permanent one.

For investors, the message is clear. The premium paid by Caixin Asset is less a signal of value and is more out of necessity, a transaction dictated by policy rather than market prudence. It exposes the big gap between the bank’s market-determined valuation and the price the local government is willing to pay to maintain stability. While the capital infusion may stave off immediate danger, it does not alter the grim fundamentals: narrowing margins, an uncertain economic recovery and a challenging credit environment.

While Weihai Bank’s situation looks shaky, it’s still better than a growing number of other regional lenders that have run into even bigger difficulties. In one of the most recent cases, the municipal government in the Northeast city of Shenyang privatized the local Shengjing Bank last month to overhaul the problem-plagued lender out of the public eye.

The Christmas Eve capital gift for Weihai Bank is a stark reminder that significant strains are building beneath the surface of China’s financial system, particularly among smaller, less diversified regional lenders. While the state-led capital support model relieves some financial pressures on these banks, it also hurts small private investors by diluting their stock.

Unsurprisingly, Weihai Bank shares have dropped since the share sale announcement and now trade at a price-to-sales (P/S) ratio of 1.7, below 2.5 for ICBC. Huishang Bank (3698.HK), another regional lender, trades at an even lower ratio of 1.07, reflecting lack of investor enthusiasm around these stocks.

Policymakers are caught in a bind, forced to choose between allowing market discipline to run its course and orchestrating recurring bailouts that delay necessary restructuring. As the economy continues to sputter, the pressure on these regional banks will only intensify. The gift to Weihai Bank is keeping the lights on for now. But it does nothing to illuminate a clear path forward for China’s troubled regional banking sector.

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The bourse, launched in 2021 to help fund smaller tech startups, has hosted 38 IPOs this year, up more than 50% from 2024

Key Takeaways:

• Just four years after its launch, the Beijing Stock Exchange has quietly boomed this year by helping 38 startups raise about $1 billion
• The exchange is currently vetting another 172 IPO candidates, more than quadruple the number for both the rival STAR and ChiNext markets in Shanghai and Shenzhen

By Chen Ruzhen

Hong Kong maybe basking in the glow of an IPO frenzy that has made it the world’s hottest market for new listings this year. But to the north in China’s capital, a quieter, but also impressive, frenzy is shaping up on the Beijing Stock Exchange, once seen as a capital markets backwater. That quieter rush is drawing in throngs of listing hopefuls and investors seeking to tap into growing enthusiasm toward technology startups.

The bourse, kicked off by President Xi Jinping four years ago to help fund innovative small companies, has hosted 38 IPOs in 2025 – up over 50% from last year. That puts it on track to beat out the similarly startup-focused STAR Market in Shanghai and ChiNext in Shenzhen in terms of new listings.

The previously overlooked exchange is also currently vetting more IPO candidates than its two bigger rivals combined, thanks to surging investor interest in small-cap tech stocks. Analysts expect the momentum to extend into next year, as Beijing seeks to bolster the exchange’s role as a venue to fund China’s “little giants,” which are key to a national strategy toward supply chain independence, tech self-reliance and economic upgrading.

The Beijing Stock Exchange is helping companies “transform from being ‘small and beautiful’ to ‘strong and lasting,’” China Galaxy Securities said in its 2026 strategy report. “It also helps China develop a multi-tier capital market system” that can finance companies in various stages of their life cycles, it added.

IPO hub

In 2025, Chinese startups raised 7.2 billion yuan ($1 billion) via IPOs on the Beijing Stock Exchange. While that amount is still modest compared with the roughly $36.8 billion raised in Hong Kong IPOs this year, it’s still up 40% from a year ago. And we should also point out the IPOs in Beijing are far smaller than those in Hong Kong since they come from earlier stage and more specialized companies.

The 38 companies that sold shares in Beijing include precision equipment maker Zhuhai Nante Metal Technology (920124.BJE), medical diagnostics maker Dynamiker Biotechnology (920009.BJE) and energy equipment manufacturer Santacc Energy (920158.BJE). That compares with about a dozen IPOs on the STAR Market this year, and 30 on the ChiNext, although average fundraising size on the rival boards is also much bigger.

Underscoring the quiet revolution taking place in Beijing, the bourse in China’s capital is currently vetting 172 listing candidates – quadruple the 44 candidates currently being vetted on the STAR Market and 34 on the ChiNext, according to auditor KMPG. Bankers say smaller companies seeking fast listings are increasingly drawn to the Beijing exchange, which has the most relaxed requirements for IPO applications of any Chinese board.

Beijing is also home to another board, the National Equities Exchange and Quotations (NEEQ), once called the “New Third Board,” which has struggled to attract listings partly due to a high bar for investors that results in thin trading and low liquidity.

China’s securities regulators drastically tightened the screws on IPOs in Shanghai and Shenzhen in early 2024, especially on the STAR Market, which focuses on “hard technology” such as biotech and semiconductors as part of the country’s drive for self-sufficiency in those areas.

Facing prohibitively high bars for IPOs in Shanghai and Shenzhen, many companies are now seeking to list on the Beijing exchange, which has a lower threshold. Growing increasingly impatient, dozens of companies have withdrawn their applications from China’s two biggest exchanges, applying to float on the Beijing bourse instead.

For example, Shandong Haiaos Biotechnology announced this month it has hired bankers to help it prepare for an IPO on the Beijing exchange. Previously, the collagen casing producer had planned to list in Shenzhen. Other companies that have switched to Beijing include Beijing Wisdom Mechanical Technology, Zuxing New Materials, Beijing Beier Bioengineering and fintech firm Agree Technology.

Beijing has welcomed such companies by streamlining its vetting process, publishing listing criteria that include a wider range of applicants, and taking measures to improve market liquidity.

Trading boom

The exchange’s benchmark index, the Beijing Stock Exchange 50 Index, has jumped more than 40% so far this year, outperforming an 18% gain for the blue chip CSI300 index, and a 30% gain for Hong Kong’s Hang Seng Index. Average daily turnover has more than doubled from last year to roughly 30 billion yuan, as individual and institutional investors alike pile into the market. According to Huayuan Securities, the number of trading accounts reached almost 10 million, up from 7.6 million at the end of 2024.

The Beijing Stock Exchange has managed to perform better than the older NEEQ partly due to lower requirements for investors. Such investors must have accounts worth at least 500,000 yuan, the same as the STAR Market, and half the 1 million yuan required for NEEQ trading.

In a sign a virtuous cycle could be forming where IPOs and investors feed off each other, newly listed stocks on average popped up 354% on their Beijing exchange debuts, higher than 222% in Shanghai and 206% in Shenzhen, according to Huayuan Securities. Such big jumps are caused partly by stock exchange rules that often force companies to price their shares artificially low. But the better performance for Beijing compared with Shanghai and Shenzhen still attests to more excitement around companies listing on the newer Beijing exchange.

Analysts say the Beijing board has huge growth potential, as its size – despite this year’s rapid growth – still has yet to meet the government’s big expectations. Even after this year’s boom, the exchange’s total market cap is still less than 1 trillion yuan, a tiny fraction of 65 trillion yuan for Shanghai and 43 trillion yuan for Shenzhen.

Founder Securities expects the Beijing bourse to continue reforming its rules in 2026 to attract more IPO candidates and lure more investors. For example, mutual funds companies are expected to launch exchange-traded funds (ETFs) on the board that would channel fresh capital into the market, while pension funds and foreign institutions may also boost their activity as more tech startups get listed.

When the exchange was established in September 2021, President Xi said it should be a “hub for serving innovative small and medium-sized enterprises.” That mission is getting more imperative as the rivalry between China and the U.S. intensifies, and the world’s second-biggest economy loses growth momentum. And with China currently crafting a new Five Year Plan for its economic priorities from 2025 to 2029, the Beijing bourse could play an important role in helping to execute fundraising needed for that plan.

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The advertising services company is allowing users to settle payments for its newer business in used gadget trading using stablecoins

Key Takeaways:

• Qian Xun has unveiled PayKet, allowing users to settle payments on its platform with stablecoins, as it shifts away from its previous main business in advertising services
• In September, the company also bought a fintech company to develop new products and services based on blockchain technology.

By Warren Yang

Qian Xun Technology Ltd. (1640.HK) is the latest in a new generation of listed Chinese companies transitioning to new businesses, often dropping yesterday’s news for the latest flavor of the moment. In this case, the company evidently believes its future lies in applications using virtual currencies.

Last Friday, Qian Xun, which is transforming into an e-commerce platform operator from its older advertising services business, provided the latest evidence of its new strategic direction by unveiling a new payments service. Called PayKet, the service is primarily for settlements of cross-border payments for trading in second-hand mobile phones using stablecoins, which are cryptocurrencies pegged to real-life assets like the U.S. dollar. The product also offers some features that make supply chain finance easier, as well as digital-money wallet functions.

Cryptocurrencies are banned in China, where Qian Xun is based. But Hong Kong has embraced them, especially stablecoins, which are less speculative and, like their name implies, are meant to be more stable in value. Hong Kong launched a stablecoin regulatory regime in August, and it’s quite likely that’s where PayKet’s services are based.

The PayKet rollout comes just three months after Qian Xun agreed to buy Punkcode Technology, a Web3 fintech company founded by Tencent alumni, for HK$25 million ($3.2 million) to develop new products and services based on blockchain technology.

Qian Xun is exploring use cases for cryptocurrencies in real-life transactions as it shifts its focus to e-commerce from advertising, following another acquisition last year of a platform for online trading of used computers and other electronic devices. As it made the shift, the company changed to its current name from Ruicheng (China) Media Group Ltd. early this year.

The company’s revenue soared 10-fold year-on-year to 647 million yuan ($92 million) in the first half of this year, fueled by its new e-commerce business, even as its advertising revenue shrank. The e-commerce segment dragged down Qian Xu’s gross margin a bit during the latest six-month period. Its net profit growth matched its revenue surge, though that was thanks to non-operational factors, mostly gains from the disposal of a subsidiary. More encouragingly, the first-half results put the company on track to record its first annual net profit in years. 

Cross-border trade

A major benefit of stablecoins and other cryptocurrencies is that transaction settlements are almost instantaneous and less costly than using country-issued currencies like the U.S. dollar or Chinese yuan. Qian Xun says that will help minimize “pain points” in cross-border payments. Stablecoins were already used for $46 trillion of transactions in the past year, according to an October report from a16z crypto, a venture capital fund that invests in crypto startups.

Qian Xun handles overseas sales of more than 1 million mobile devices annually, so the user base for PayKet may grow relatively quickly. PayKet isn’t limited to settlements of payments for trading of used mobile phones. The company plans to expand product categories to cover all “3Cs,” namely, computers, communications devices and consumer electronics.

Qian Xun is using Payket not only for payment settlements, but also as part of a move into supply chain finance. Emerging technologies like blockchain and AI can make a big difference in this type of financing activity by expediting processes, providing better transparency and managing risk more effectively.

By integrating its self-developed internet of things (IoT) smart warehousing technology and an AI model for price predictions, PayKet provides credit intermediary services for supply chain finance. Plus, it digitizes inventory goods and combines them with smart contracts, or digital contracts stored on blockchain networks. Customers can use idle funds on the platform for wealth management functions as well.

In its announcement of PayKet, the company touted that the product’s rollout marks an upgrade of the company to a fintech services provider for digital currencies. It also marks an important step in the product’s journey to become a “Caifutong for cross-border trade,” it said, referring to Tencent’s cross-border payment service.

PayKet will ultimately bring new revenue to Qian Xun in the form of fees for the various services it provides, and will also help to accelerate the company’s nascent transformation from an advertising services provider. Qian Xun decided to make that shift as customers for its older advertising services curb their marketing spending amid China’s prolonged economic slowdown, pressuring the company’s older core business. As that happened, Qian Xun lost money in each of the three years through 2024.

At the same time, weak economic conditions, both in China and many other countries around the world, mean a growing number of consumers may opt for used gadgets, instead of splurging on new ones, giving a boost to demand for Qian Xun’s services. That growing acceptance, helped by advances in standardization and refurbishment capabilities, have helped to lift a new generation of Chinese electronics recycling specialists like U.S.-listed ATRenew (RERE.US) and ShanH, which has filed to list in Hong Kong.

To develop new services for second-hand device trading, both in China and overseas, Qian Xun raised about HK$300 million by issuing convertible bonds in February.

Investors seem to like where Qian Xun is headed, pushing the company’s shares up by a quarter this year. They still trade at a relatively modest price-to-sales (P/S) ratio of 2, but that’s well above 0.2 for Hong Kong-listed shares of e-commerce giant JD.com (JD.US; 9618.HK) and 0.5 for ATRenew. It’s also ahead of the 0.8 for Cango (CANG.US), which has undergone its own recent crypto transformation from a car trader to bitcoin miner and high performance computing (HPC) center operator.

The valuation gap suggests that investors believe Qian Xun’s focus on relatively affordable used electronic products can work well in the current economic environment. They also probably like its move into cutting-edge financial services using blockchain and AI. If the company can lure more consumers through the convenience of settlements using cryptocurrencies, it would mark another step in the right direction that could give its stock price more upside.

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The venture capital company has set a new date of Dec. 31 to finalize the sale of its 45% of Yoplait China to a group affiliated with IDG Capital for 814 million yuan

Key Takeaways:

• Tian Tu Capital will sell its 45% of Yoplait China to a group affiliated with IDG Capital, as it extended a deadline for finalizing the deal
• The consumer-focused venture investor is examining new areas including digital assets and income-oriented investments to boost its anemic return rates

By Doug Young

It’s not easy being a venture capital investor in China these days, especially in a tough consumer sector plagued by weak sentiment due to a sputtering economy. That reality is all too apparent in the recent fortunes of Tian Tu Capital Co. Ltd. (1973.HK), which has only been able to profit modestly from one of Hong Kong’s hottest IPO markets in years.

Despite that, the company looks set to end 2025 on a relatively sweet note, following its announcement earlier this month of plans to sell its 45.22% stake in yogurt giant Yoplait China to a group affiliated with IDG Capital, one of China’s most successful venture investors, for 814 million yuan ($115 million). That deal suffered a minor setback last week, when Tian Tu announced it had yet to finalize the terms by a Dec. 10 target, and was extending the date to Dec. 31. Such delays aren’t uncommon for deals of this magnitude, and it appears Tian Tu simply wants to finalize things by the end of this year.

The deal is part of a larger sale of Yoplait China by its investors, which also include another holder of 41.74% of the company, as well as a management group that holds the remaining 13.04%. The IDG affiliate that is buying Yoplait China, Kunshan Nuoyuan Ruiyuan Management Consulting Co. Ltd., will pay a total of 1.8 billion yuan to buy out all three investor groups.

The venture, which carries the name of one of France’s leading food brands, is doing quite well lately, capitalizing on growing Chinese awareness of the benefits of yogurt in a healthy diet. Established in 2013, it booked 810 million yuan in revenue last year, nearly double the 454 million yuan it generated in 2023, as its net profit jumped to 95.5 million yuan from 8.39 million yuan over that period.

Given that strong performance, we wouldn’t be surprised to see IDG try to quickly flip Yoplait China through a Hong Kong IPO if the market remains strong by the time the deal closes. But that’s another story for another day.

The sale will bring Tian Tu Capital a nice chunk of change for future investment, though it’s really somewhat bittersweet. That’s because Tian Tu will actually record an 800,000 yuan loss on the sale compared to its 2024 valuation, which is basically breakeven for such a large sum. But it’s hardly an exciting return for such an investment.

That seems to be the broader story for Tian Tu Capital these days, namely, that the company continues to get weak returns on its many investments. Things were even worse before the recent IPO boom, as the company was having difficulty exiting many of its investments in such a weak consumer market.

At least that element of the equation has changed somewhat lately. Among its nearly 200 portfolio companies at the end of June, at least a handful have made recent Hong Kong IPOs or are getting ready to do so. Those include tea seller Bama Tea (6980.HK), which made its trading debut in late October, infant products maker Butong Group (6090.HK), which debuted in September, and Distinct Healthcare, which filed for its Hong Kong IPO last month. Post-IPO performances have been mixed, with Butong currently up 47% from its listing price, while Bama is down 22%.

Return to profitability

China’s venture capital landscape has changed dramatically over the last six or seven years, both for market-related and regulatory reasons. While the market-related reasons are mostly related to a weak domestic economy, the regulatory ones owe to China’s clampdowns on various financial sectors over concerns about risky fundraising and lending practices.

Those two factors caused the number of private equity and venture capital funds to slide from 14,159 in 2018 to just 7,000 in 2022, Tian Tu said in its prospectus at the time of its 2023 IPO. As the market has slowed and the number of companies shrunk, the private equity industry did just 93 deals in the first nine months of this year, compared to 279 for all 2024 and 562 in 2022, according to PitchBook data cited in a recent CNBC report.

Tian Tu’s consumer focus has put it in a more difficult position than many of its peers focused on the technology and drug segments, which tend to see strong growth and greater interest from stock investors, making IPOs easier. In its latest midyear report for the first half of this year, Tian Tu said the average investment in its portfolio companies totaled 65.1 million yuan by the end of June, with an average fair value gain of 25.7 million yuan per investment – representing a relatively unimpressive return of about 40%.

The company’s revenue plus investment gains totaled 67 million yuan in the first half of this year. While that doesn’t look particularly impressive, it’s actually a major turnaround from the year-ago period, when the figure was nearly negative 600 million yuan, as the company logged 620 million yuan in investment losses. While the fact that Tian Tu could return to positive investment gains this year is commendable, the size of those gains won’t impress anyone, certainly not the company’s investors.

Tian Tu’s stock barely budged after the Yoplait China sale announcement, and the stock is down 22% this year – light years behind a nearly 30% gain for the benchmark Hang Seng Index.

The company acknowledged the difficulties it faces due to its focus on the consumer sector in its latest report, and said it is looking at several other areas to diversify beyond that reliance. It has already begun investing in some biotech startups, and in its latest financial report said it is looking at income-oriented investments, strategic M&A and select initiatives in the fast-evolving digital asset space as potential new investment areas.

It had 1.2 billion yuan in cash at the end of June that it could use for such investments, and will probably get some more from the Yoplait sale, as well as other upcoming share sales it’s likely to make following Hong Kong IPOs for some of its portfolio companies. There’s no guarantee that such a diversified investment strategy will bring better results than its core consumer investment focus. But at least such a move could bring some excitement back to Tian Tu’s stock, which is down nearly 60% from its 2023 IPO price.

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“I wonder to what extent Buffett’s exit was actually driven by BYD’s financial position.”

Key Takeaways

• Regulators are dismantling a massive digital voucher system used by BYD that obscured liabilities and squeezed cash-strapped suppliers
• Hong Kong brokerage GoFintech exemplifies a worrying trend of Chinese companies making desperate, value-destroying pivots into unrelated industries

By Doug Young and Rene Vanguestaine

Scrutinizing the financial health of Chinese companies often requires looking past the headline figures to understand the machinery generating them. Recent developments have exposed cracks in the foundations of two very different market players. One of those is a regulatory crackdown on a shadowy financing practice at the country’s leading electric vehicle (EV) manufacturer, BYD. The other comes in a radical, margin-crushing business transformation by a Hong Kong financial services firm, GoFintech.

While the first involves an industry titan and the other a tiny brokerage, both stories underscore a recurring theme of financial opacity and the lengths to which companies will go to manage their cash flow and growth narratives.

We begin with a complex financial instrument that has permeated the supply chain of BYD (1211.HK; 002594.SZ). According to a recent in-depth report by Caixin, the EV giant is quietly dismantling a massive digital payment system used to settle obligations with its suppliers. The system involves "Dilian" (or “BYD Chain”), a system of self-created digital vouchers backed by BYD’s own credit.

In most parts of the world, a company typically has 60 to 90 days to pay a supplier. However, BYD found a convenient way — abusing its dominant power, morally speaking — to extend that timeline to eight months or longer. In the interim, they issue a piece of paper effectively stating, "I owe you."

If a supplier is desperate for cash, they can try to secure funds against this promise to pay, but only at a discount. If traditional financial institutions balk, suppliers can turn to a BYD subsidiary, which might offer cash at an even steeper discount. By mid-2023, BYD had issued more than 400 billion yuan ($56 billion) worth of these instruments.

It’s a lucrative arrangement for the issuer, but it looks uncomfortably like a scam and an abuse of suppliers in a tight economy. It’s surprising that Chinese regulators took this long to intervene, though the central bank has now given companies two years to comply with new rules. We recall reports from at least six months ago indicating government pressure on big manufacturers to accelerate payments to their SME suppliers. The delay in cracking down will likely force smaller enterprises to close shops or fire workers due to liquidity struggles.

For investors, the implications are significant. This system was a convenient method for BYD to keep obligations off its balance sheet, obscuring the company's actual financial condition. As this unwinds, we expect to see an increase in liabilities on BYD's published balance sheet. This transparency could make creditors and public investors increase the company's borrowing costs.

It’s worth noting that Warren Buffett’s Berkshire Hathaway fully exited its position in BYD earlier this year. In light of these revelations, we wonder if that departure was linked to the realization that the company's financial position was not as robust as it appeared. If the situation deteriorates, this financing scheme may well be viewed as the canary in China’s EV coal mine.

The risky business of constant reinvention

While BYD grapples with its balance sheet, a smaller player in Hong Kong is engaging in a different kind of financial alchemy. GoFintech (0290.HK) recently reported that its revenue skyrocketed to HK$1 billion ($128 million) in the first half of its latest fiscal year — a 40-fold increase from just HK$28 million a year earlier.

The catalyst was a move into commodities trading, acting as a middleman between buyers and sellers. However, this revenue surge came at a brutal cost, as the company’s gross margin crashed from 75% to just 6.6%. Previously a financial services provider offering stock brokerage and margin financing, GoFintech is now venturing into commodities, as well as artwork trading and tokenization.

We view this move as risky, to say the least. The pivot suggests that even in a bull market with increased trading volumes, GoFintech was likely losing market share to more aggressive platforms like Futu and Tiger Brokers.

Diversification is one thing, but we question whether the company possesses the expertise to manage the inherent risks of commodities trading. History is littered with cases where brokers are left holding the bag, discovering that the physical assets they thought they possessed were not there. Trading commodities is fundamentally different from trading stocks. If we were investors, we would either stay away or demand deep due diligence on their risk management capabilities.

This reflects a broader, troubling tendency among Chinese companies to constantly reinvent their business models. We’ve seen similar patterns with companies like Qudian, which began as a fintech lender, pivoted to prepared meals, and then attempted last-mile delivery in Australia.

Such radical shifts often signal that a company has failed in its core business. In Qudian’s case, they entered Australia simply to escape hyper-competition in China. These pivots rarely end well. When a company sits on hundreds of millions in cash, as Qudian did, management often finds creative ways to destroy that value rather than returning it to shareholders.

We believe investors should avoid companies that abandon the core businesses they mastered to venture into unknown territory. Whether it’s an EV giant squeezing suppliers with shadow currency or a brokerage chasing low-margin revenue to mask a failing strategy, the lack of transparency and strategic discipline presents a risk that is best avoided.

The online car loan facilitator processed nearly a quarter more transactions year-on-year in the third quarter, defying overall sluggishness in China’s auto market

Key Takeaways:

• Yixin handled 235,000 transactions in the third quarter, up 23% year-on-year, outpacing China’s overall growth in car sales during period
• The auto financier is shifting its focus to used electric vehicle loans as that part of the sector looks set to boom with the rapid uptake of EVs

By Warren Yang

No matter how rough the times, there’s often still a sweet spot where a savvy business can find profits. Yixin Group Ltd. (2858.HK) seems to have found such a place in China’s slowing auto market, even as most players suffer from tumbling revenue and evaporating profits.

In a business update released last Tuesday, the online car loan facilitator said it handled 235,000 transactions in the third quarter, up 23% year-on-year. In value terms, loans that Yixin helped dole out amounted to 21.2 billion yuan ($3 billion) for the quarter, up about 15% from a year ago.

While Yixin didn’t provide a third-quarter revenue figure, the company appears to be doing quite well in the grand scheme of things, considering the current weak state of China’s car market – and the country’s broader slowing economy.

Growth in auto sales in China has been weak for several years, primarily due to a prolonged economic slowdown that is making consumers reluctant to splurge on big-ticket items like vehicles. A price war triggered by intense competition and oversupply isn’t helping matters, as it encourages potential buyers to hold off on purchases in hopes of further price markdowns.

Sales of cars, including used ones, grew about 11% year-on-year in the third quarter. While that might look good in any developed economy, it’s a far cry from even faster expansion in the early 2000s. And the strong headline gain hides the fact that carmakers and dealers are offering big discounts to clear out their large inventories – hardly a sign of a healthy market.

This doesn’t mean there isn’t an opportunity for Yixin to grow. Its latest business update shows that it’s benefitting nicely from increasing demand for used electric vehicles (EVs). Beijing remains supportive of battery-powered cars, continuing to roll out new policies to stimulate sales of those environmentally friendly vehicles that now account for half of the country’s new vehicle sales. And with so many new EVs hitting the market, prices of pre-owned ones that are still in good condition drop quickly, offering good bargains for people looking for value.

Growing used car business

Yixin’s financing for used cars jumped by more than half in the third quarter to account for well over 50% of the total loans it facilitated during the three months. Particularly, loans for secondhand EVs grew to 23% of its used car business from 13% in the third quarter of 2024. The company says that rapid shift is intentional.

“This growth demonstrates the continued success of our proactive strategy to offer more precise risk pricing and bring in profitable used car products,” Yixin said in its report.

Yet translating transaction growth into similar gains in revenue or profit for Yixin hinges on a few other factors.

For starters, used cars are cheaper than new ones, which means loans for the former are typically smaller than the latter. This explains why the increase in value of Yixin’s transactions was smaller than growth in the number of transactions in the third quarter. So, Yixin likely earns less revenue from each used-car loan than ones for new vehicles, resulting in revenue growth that trails growth in the number of transactions.

That means revenue growth in the third quarter likely was far slower than the 20% rise in the number of transactions during the period.

On the more positive side, Yixin provides more payment guarantees for the loans it facilitates for used cars compared with new ones. So, the expansion of that part of the business brings in more fees for such services. But growth in this area also comes with some downside, as the company needs to book losses from loans it guarantees that ultimately sour, and those charges eat into its bottom line.

In its midyear report released in August, Yixin’s said its revenue expanded 22% year-on-year to 5.4 billion yuan in the first half of the year. But its credit impairment losses jumped by a larger 59%, eroding its gross profit. The company still managed to increase its net profit by 34% to 549 million yuan during the six months – an impressive feat as many other companies throughout the auto industry were reporting falling revenue and profits.

Business diversification

As loan facilitation comes with risks, Yixin is also diversifying its business. A key focus for the company is its software as a service (SaaS) platform that connects car makers, financial institutions and consumers. Financing handled over the platform more than doubled in value year-on-year in the third quarter after Yixin brought in two new financial institutions during the period. Artificial intelligence (AI) adoption is critical for the company, which is the case for many other digital-oriented businesses these days. For Yixin, in particular, the technology can boost efficiency and lower costs by streamlining the process of vetting loan applications.

In fact, SaaS services became Yixin’s biggest single revenue source in the first half of the year, with income from that segment surging 124% year-on-year to account for more than a third of total sales.

That said, general weakness in the Chinese economy, including the car market, will remain a drag on Yixin for the foreseeable future. New car sales in the country declined for a second straight month in November, though industry watchers said that was partly because year-earlier figures were inflated by government subsidy programs that are now being scaled back.

Investors have largely overlooked the auto sector’s woes and rewarded Yixin for its strong performance in the face of a challenging environment. The company’s shares have rallied since the release of the latest business update, and its stock now trades at a price-to-earnings (P/E) ratio of 16, much higher than the 3.6 for FinVolution (FINV.US) and 2.8 for Hong Kong-listed shares of Qfin (QFIN.US, 3660.HK), two other retail loan facilitators that don’t specialize in car financing.

Yixin’s current valuation indicates that investors appreciate its ability to power through the current economic environment with both steady profit and revenue growth. Its moves into used EV financing and SaaS both look like savvy steps to keep growing in such a difficult market, showing Yixin perhaps deserves that recognition.

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The insurance broker’s revenue rose 38.4% in the third quarter, boosted by a 20-fold increase for its young technical services business

Key Takeaways:

• Waterdrop looks set to return to strong revenue growth this year, ending three consecutive years of declines
• The company’s new technical services segment is recording explosive growth, going from nearly nil last year to supplying 23% of its revenue in the third quarter

By Doug Young

The old adage “If a tree falls in the forest but no one hears it, does it make any sound?” seems to summarize the case with the latest financial results from insurance broker Waterdrop Inc. (WDH.US). Despite posting some very impressive growth in a difficult operating environment, the company’s shares barely budged in the next two trading days after the results announcement, rising slightly on Wednesday, only to give back the gains and a little more the next day.

In Waterdrop’s case, another adage, “If you can’t stand the heat, get out of the kitchen,” also seems to apply. The insurance brokerage business that provides the bulk of the company’s revenue is getting increasingly tough, as China rolls out a steady stream of new regulations limiting the profits companies can make from that middleman business.

In response, Waterdrop has been turning to providing services to insurance companies to help them run their business more efficiently. That business looks far more lucrative and is likely to receive state support – or at least less government interference – since most insurance companies in China are state owned. Many of those insurers are currently struggling due to a slowing economy, which may partly explain why China is taking steps to shore up their business by limiting the fees that insurance middlemen like Waterdrop can collect.

Waterdrop, which deals mostly in health insurance, is also using its extensive databases to help drug companies identify patients for their clinical trials, another area that looks unlikely to be affected by government oversight. And last but not least, the company is using AI to improve things like its insurance underwriting, risk analysis and customer service, “allowing us to gain profound insights of our users within milliseconds,” said Chairman Shen Peng.

"In the third quarter, AI served as the core driver for enhancing business quality and efficiency, propelling the company to achieve double-digit high growth in both revenue and profit,” said Shen. “Looking ahead, we will capitalize on technological opportunities by deepening AI integration and driving innovation across our business ecosystem, thereby fueling sustainable growth.”

Perhaps investors have tired of all the recent AI hype in company financial reports, which might explain why they largely overlooked Waterdrop’s impressive results. The company’s revenue rose 38.4% year-on-year during the quarter to 974.9 million yuan ($138 million) from 704.1 million yuan a year earlier. To put that in perspective, Zhongan (6060.HK), a leading private insurer, reported flat revenue in the first half of this year; while Shouhui (2621.HK), another private insurance broker, reported its revenue fell 21% for the six-month period.

Waterdrop was no stranger to falling revenue either. Its revenue was dropping steadily since 2021, falling from 3.2 billion yuan that year to 2.8 billion yuan in 2024. But it looks almost certain to return to growth this year. With the strong third-quarter performance, the company has generated 2.57 billion yuan in the first nine months of this year, up 24% from 2.08 billion yuan a year earlier.

New growth engine in technical services

Waterdrop has two major revenue segments, its core insurance business, and its smaller crowd-funding business, which helps people without formal insurance policies pay for expensive medical treatments. The insurance business is the company’s main revenue source, generating 869.7 million yuan in the third quarter, up 44.8% year-on-year from 600.7 million a year earlier, accounting for nearly 90% of total revenue.

The company’s core insurance brokerage revenue rose 14% year-on-year during the quarter, with first-year premiums from that business up 32.3% from the previous quarter. The company attributed the improvement to upgrades to its data infrastructure and real-time customer evaluation capabilities, which improved the efficiency of its underwriting.

But the star of the show, as we previously mentioned, was technical services, which includes tools to help insurers run their businesses more efficiently by improving areas like risk assessment, customer relations management and complaint management. Revenue from that part of the insurance business rose nearly 20-fold to 196.4 million yuan in the third quarter from just 10.2 million yuan a year earlier, now accounting for 22.6% of the company’s total.

Another potential rising star is the company’s segment helping drug companies identify patients for clinical trials, which it calls digital clinical trial solutions. That segment posted revenue of 31.9 million yuan in the latest quarter, up 31% year-on-year, showing it could become a new growth engine by serving China’s increasingly crowded field of drug developers in need of patients for their clinical trials.

Waterdrop’s crowdfunding services is quite large in terms of scale. But it doesn’t generate a huge amount of revenue for the company, probably at least partly due to the bad optics that would result if it were to make big profits from a business targeted at suffering people, many of them low income. The crowdfunding business generated a modest 65.7 million yuan in revenue in the third quarter, basically flat from 65.8 million yuan a year earlier.

Waterdrop’s operating costs and expenses rose by 27.1% during the quarter, quite a bit slower than its revenue growth, helping to fuel a 330% rise in its operating profit to 113.8 million yuan for the period. Its net profit also rose by a healthy 60% year-on-year for the quarter to 158.5 million yuan, representing its 15^th consecutive quarterly profit.

While response to the latest report was muted, investors haven’t exactly ignored Waterdrop’s improving outlook. The stock is up 54% this year, though many other Chinese tech stocks have recorded similar gains. Its current price-to-sales (P/S) ratio stands at 1.52, which is well ahead of the 0.64 for Shouhui and 0.59 for Zhongan, showing investors prefer the stock for its lower exposure to regulatory risk and China’s slowing economy.

Waterdrop could be partly suffering from an image problem, as many investors still see the company as a broker operating in a difficult insurance market. But if it can shift that image to a high-growth provider of tech-based services for insurance companies, and also keep boosting its work with drug companies, its stock could find some potential upside.

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After booming for much the first year in its pivot to bitcoin mining, the company is looking ahead to a future of creating a ‘global, distributed AI compute grid’

Key Takeaways:

• Cango’s revenue jumped 60.6% sequentially in the third quarter to $224.6 million, buoyed by the addition of new mining capacity and rising bitcoin prices
• The company said it sees bitcoin mining as a “practical on-ramp” towards its eventual goal of building a global network of high-performance computing centers

By Doug Young

As it marks the one-year anniversary of its transformation from car trader to bitcoin miner, Cango Inc. (CANG.US) is learning that the virtual currency business isn’t for the faint of heart. The company reported strong financials for the third quarter through September, including a 60.6% quarter-on-quarter revenue gain for the latest period.

But all ears during the company’s earnings call were on the current quarter covering the final three months of the year, which have seen bitcoin drop sharply from its 2025 highs reached in early October. Speaking on the call after the release of its latest results on Monday, Cango executives assured analysts and investors they have plans in place to address the industry’s notorious volatility.

And perhaps more importantly, they also detailed a longer-term vision where the ups-and-downs of bitcoin may no longer matter for the company as it makes another transition from bitcoin miner to operator of high-performance computing centers for AI applications. Many believe such centers, often powered by on-site renewable power sources, will become critical infrastructure of the future to power a coming boom in AI-based applications requiring huge amounts of computing power and electricity.

Cango detailed its future roadmap as it symbolically released its latest quarterly results in U.S. dollars, ending its former use of the Chinese yuan. It also converted its New York listing to trade in the company’s ordinary shares, abandoning its former use of American depositary receipts (ADR) used by many Chinese companies, which is often criticized for less transparency.

Cango started out providing car-related services in China from its base in Shanghai, before abandoning that road due to persistent market weakness. It switched to bitcoin mining last November, and began discussing its latest ambitions to operate a global network of high-performance computing (HPC) centers with the release of its last quarterly report in September.

“We view bitcoin mining as the practical on-ramp toward our energy and compute ambitions, following the sequence of ‘from bitcoin mining to energy access, and from operational depth to AI compute deployment,’” said Paul Yu in the company’s latest earnings report.

That report showed refinements to Cango’s earlier plan first disclosed in September. The first phase of its refined roadmap already downplays the bitcoin mining business, and says Cango will focus on entering the GPU computing power leasing market over the near-term to serve compute platforms and AI startups. Over the medium-term, the company will turn its focus to setting up the necessary infrastructure for a regional AI computing network, including purchase and construction of data centers and accompanying power supplies.

The company has already begun experimenting with such infrastructure ownership and operation through its purchase of a data center in the U.S. state of Georgia in August. It disclosed it has also begun some related green energy pilot projects in Oman in the Middle East, and in Indonesia in Southeast Asia.

On the earnings call, Yu said that instead of building big data centers, Cango will focus on a more flexible strategy of “distributed compute units,” adding such an approach “will integrate dispersed GPU resources into standardized compute pools and break them into smaller units tailored to the needs of small and midsized enterprises.”

AI compute grid

Cango’s longer-term goal in its ongoing transformation is to create “a global, distributed AI compute grid powered by green energy, integrating multiple hubs and edge nodes for seamless, scalable capacity,” the company said. It added that its future network will seek to enter into multi-year contracts with clients “positioning Cango as a utility-like provider of AI compute for multinationals and large‑scale AI applications.”

While all that sounds exciting, the company’s latest results show how its current business in the bitcoin market is becoming increasingly tough. Since entering the business with 32 EH/s of capacity purchased in November last year, Cango has gone on to add an additional 18 EH/s of capacity in July, leading to a big jump in its monthly bitcoin output from that time.

The company’s monthly output had been dropping steadily in the first half of the year as it faced more competition for a fixed number of new bitcoins available. But then the figure jumped to 650.5 units in July, up 45% from the 450 units in June, as the new capacity came on stream. But output has been declining again since then, including the latest count of 602.6 units in October.

To compensate for the extra competition, which makes the cost of each bitcoin more expensive to mine, the company has been focused on improving its utilization rate through measures like tweaking its mining facility footprint, and upgrading older mining machines. Through such efforts, it has steadily raised its utilization rate to 46.09 EH/s in October from just 40.91 EH/s in July, meaning it’s now operating at more than 90% of its 50 EH/s of capacity.

Still, the rapid declines in bitcoin prices mean the cryptocurrency’s value is fast approaching the cost required to mine each unit. Excluding depreciation costs related to its mining machines, Cango spent an average of $81,072 to mine each of the 1,930.8 bitcoins it added in the third quarter, compared with the currency’s current price of about $87,000. Including amortization expenses, the average mining cost per coin exceeded the current bitcoin price. 

As its efficiency improved and bitcoin prices were still high, the company’s revenue rose sharply to $224.6 million in the third quarter from 1 billion yuan ($141 million) in the previous quarter. Its cost of revenue, including depreciation costs, was $198 million, giving the company $43.5 million in operating income and $80.1 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). On the bottom line, Cango also returned to the black with a $37.3 million profit for the quarter, reversing losses in the last two quarters.

The company’s stock soared after it announced its bitcoin pivot, and continued to climb as the cryptocurrency rallied. But in sync with the recent bitcoin downturn, the stock has dropped in the last two months, and is down about 30% this year. Rival miner Mara (MARA.US) looks similar, with its stock also down 31% this year. A better role model for Cango might be GDS (GDS.US), one of China’s leading independent data center operators, whose shares are up 47% this year on big investor hopes that it can become the type of high-performance computing center operator that Cango hopes to emulate.

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The provider of stock brokerage and other financial services’ revenue surged more than 40-fold in the first half of its fiscal year, but its gross profit margin plummeted

Key Takeaways:

• GoFintech’s revenue soared 47 times year-on-year in the six months to September, as it returned to profitability
• The big revenue gain largely owed to new supply chain brokerage services, but margins for the new business are razor-thin

By Warren Yang

Revenue growth sometimes comes at the expense of profit margins. A textbook – and somewhat extreme – case of this not-so-desirable dynamic comes from GoFintech Quantum Innovation Ltd. (0290.HK).

Last Friday, the provider of a range of financial services reported that its revenue soared by a factor of 46 to HK$1 billion ($128 million) in the six months to September, the first half of its fiscal year, from just HK$22 million a year earlier. Adding to the good news, the company also returned to the black after losing money a year earlier, putting it on course to record its first annual profit since 2017, when it was known as China Fortune Financial Group.

As impressive as they seem at first glance, the results might leave many scratching their heads initially. GoFintech’s gross profit grew less than fivefold in the latest six-month period, which on its own looks big, but pales in comparison with the huge revenue jump. The big gap owes to a sharp erosion of its margins.

GoFintech’s gross profit margin crashed to 6.6% during the first half of its fiscal year from 75% a year earlier. The main culprit was the company’s recent foray into supply chain services dating from October last year. Although it’s a brand new area for GoFintech, it accounted for more than 90% of the company’s revenue in the first half this fiscal year, showing the young business has ramped up rapidly.

That’s promising for anyone waiting for GoFintech to build up the kind of scale needed to justify its market value, which currently stands at about $2.7 billion after a major rally over the last year. But the problem is that margins for its new supply chain business are extremely low. GoFintech earned HK$949 million in revenue from that business in the six months to September, but only derived HK$1.4 million in profits from the segment, translating to a miniscule net margin of 0.1%.

The supply chain business essentially sees GoFintech act as a middleman that matches suppliers and buyers, currently focusing on bulk commodities and precious metals. The company first gathers information on buyers’ procurement requirements and seeks suppliers that can meet their needs on the best terms.

It purchases the required commodities with its own funds, and then sells them to buyers, pocketing a small profit in the process. A staff of four runs the operation, so its operating expenses for the business are likely minimal. The major risk lies in the potential for buyers to default on their payments, since GoFintech uses its own funds to procure goods from sellers before recouping its money when buyers pay.

Tiny margins

The bottom line is that GoFintech collects tiny profits for the procurement work it performs on behalf of its customers. The company says buying customers for its supply chain services are in Hong Kong and China, including large state-owned enterprises in China. Suppliers include trading firms in Hong Kong. GoFintech may have sacrificed margins to scale up this new business quickly. Now, investors will be keen to see if the company can squeeze a bit more profits from its supply chain customers as it gains more leverage over them.

This year, GoFintech also started an artwork investment business, although it didn’t generate any revenue from that in the first half of its fiscal year. The company has a lot of plans for this new venture. For starters, in the first nine months of this year, GoFintech signed 28 deals to buy HK$830 million worth of artwork, using its internal financial resources for the purchases. If the values of those assets rise, the company can book gains, although the opposite can happen as well. The company learned the downside of such investment in its latest reporting period, when it recorded a valuation loss.

In addition, GoFintech is also looking to offer artwork-collateralized digital lending services using blockchain technology, rushing to capitalize on some of the latest trends in the financial industry. Furthermore, it wants to build a comprehensive platform for artwork tokenization, while converting its art assets into non-fungible tokens (NFTs) so they can be traded digitally.

Yet it will probably be a while before the art business generates meaningful profits, or for margins to improve significantly for the supply chain services business, neither of which is guaranteed. Instead, a more immediate boost to GoFintech’s profit will come from its recent acquisition of CSOP Asset Management from Wealthink AI-Innovation Capital Ltd. (1140.HK).

Last December, GoFintech agreed to buy 22.5% of the asset manager for HK$1.1 billion by issuing new stock. Shareholders of both GoFintech and Wealthink approved the deal in July. It’s not clear if the transaction has already closed, or if it’s still pending. But if and when the deal closes, GoFintech will include its share of CSOP Asset Management’s profit in its own income statement.

CSOP Asset Management is one of the largest issuers of exchange-traded funds (ETFs) in Hong Kong, reporting revenue of HK$677 million in the first nine months of last year and a net profit of HK$253 million.

Among GoFintech’s older businesses before all of its new initiatives, securities brokerage and margin financing performed nicely in the first half of its fiscal year. That segment’s revenue jumped more than fivefold year-on-year and its profit rose 326%, likely the result of a renaissance for Chinese stocks this year.

GoFintech shares gained 6.7% in two days after the release of its latest results, showing investors broadly liked the big revenue jump despite the huge margin sacrifice. With those gains, the stock has nearly tripled this year to trade at a trailing price-to-earnings of 78, dwarfing the 19 for more traditional stock brokerages Futu Holdings (FUTU.US) and 13 for UP Fintech (TIGR.US). But that high multiple could come down if GoFintech can quickly boost its profits following its move into new areas and remain in the black after years of losses.

Investors do appear to appreciate GoFintech’s efforts to spread its wings to new niche areas, as reflected by its big stock gains. But if the company fails to sustain its new-found profitability, the recent investor euphoria around its quick revenue growth may evaporate just as fast.

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