China has initiated a review of foreign exchange-traded fund (ETF) transactions following a regulatory probe into Jane Street's India operations, signaling heightened oversight of cross-border capital flows. The move may affect foreign investor access to Chinese equities and trigger reassessment of ETF strategies in Asia.
- China has initiated a review of foreign ETF trading on Shanghai and Shenzhen exchanges.
- The probe follows regulatory action against Jane Street in India involving cross-border trading structures.
- Foreign ownership of CSI300 and MCHI-linked ETFs rose 18% YoY in 2025.
- EEM ETF’s China exposure reached 39% by end of 2025.
- Regulatory scrutiny may lead to tighter reporting and settlement rules for foreign ETFs.
- Potential impact on liquidity and investor sentiment in Chinese equities and emerging market ETFs.
Chinese regulators have launched an internal examination of foreign investor activity in exchange-traded funds (ETFs) listed on the Shanghai and Shenzhen stock exchanges, according to market officials. The investigation follows a separate probe into Jane Street’s trading operations in India, which raised concerns about the use of algorithmic strategies and offshore intermediaries to route capital through third-party jurisdictions. The scrutiny targets ETFs tracking major Chinese indices including the SSE Composite (SHCOMP), CSI 300 (CSI300), and the MCHI index, which tracks large-cap Chinese equities. Data shows foreign ownership of these ETFs rose by 18% year-on-year in 2025, with MCHI-linked ETFs accounting for nearly 32% of total foreign inflows into Chinese equities via ETFs. The EEM ETF, which holds exposure to emerging markets including China, has seen its China weighting increase to 39% as of Q4 2025. Market participants are assessing the implications of the new review, particularly for foreign institutional investors who rely on ETFs as a cost-efficient route into Chinese markets. Regulatory uncertainty could dampen liquidity in ETFs with significant Chinese exposure, especially during periods of volatility. The review may also prompt exchanges and clearing houses to implement enhanced reporting requirements for foreign ETF trades, increasing operational friction. Stakeholders include global asset managers, prime brokers, and clearing firms involved in cross-border ETF settlements. The outcome could influence future capital allocation decisions and prompt a reevaluation of offshore structuring techniques used to access China’s $13.4 trillion equity market.