China Xi’s Iron Fist in Dealing Blows at Stock Market Irregularities

Cyclists pass the China Securities Regulatory Commission building in Beijing. The regulator is investigating several securities companies. Photo: EPA

Cyclists pass the China Securities Regulatory Commission building in Beijing. The regulator is investigating several securities companies. Photo: EPA

I said in my post “Do Not Fight against Rich and Powerful Government in Stock Market 2” yesterday that the Chinese government “can punish short sellers. Chinese law enables the government to imprison short selling speculators for the crime of disrupting the market. As for foreign investors, there are rules to restrict their sales of shares. China can tighten the rules while the speculators can do nothing but crying foul.

In addition, “(t)his is more a political than economic move aimed at winning popularity among the vast number of Chinese retail investors. It is what the Chinese government must do and must not fail!”

True enough Hong Kong’s SCMP describes the government’s moves in that respect in its report today.

Article by Chan Kai Yee as comments on SCMP’s report.

The following is the full text of the report:

Stealth mode: Chinese police spend weeks on trail in shock market probe

Investigators had been quietly building up to a surprise statement this week into alleged irregularities in China’s financial sector

PUBLISHED : Thursday, 27 August, 2015, 12:03am
UPDATED : Thursday, 27 August, 2015, 2:20am
Staff Reporters

The investigation “started quietly weeks ago” but its high-profile, late-night announcement took many by surprise, with some seeing it as a drastic response by Beijing to the “Black Monday” market rout that sent mainland shares to eight-month lows.

Xinhua announced on Tuesday night that eight people – including a top executive of a major mainland securities firm, an employee of a well-known media group as well as a serving and a former official of the national market regulator – had been taken away for questioning over alleged market malpractice.

Sources familiar with the case told the South China Morning Post on Wednesday that police had been making informal inquiries “for weeks” and the case was not directly linked to the market turbulence. But they said it did reflect the leadership’s determination to weed out rampant irregularities in the financial market.

“The investigation is not only about the current market correction. It was triggered by something bigger. It is more complicated than people think,” a former senior official with the China Securities Regulatory Commission (CSRC) told the Post.

The assessment came as Xinhua issued a commentary calling for greater efforts to “purify” the capital markets. It said more people would be implicated as the investigation went deeper.

The Xinhua commentary, posted on the central government’s website, vowed the police would “get to the bottom of things” and punish those caught in breach of market regulations.

Xinhua did not name the eight people but mainland media yesterday reported that Xu Gang, managing director of one of China’s biggest securities firms Citic Securities; Ouyang Jiansheng, a former CSRC department director in charge of market supervision; Liu Shufan, a CSRC division head; and Caijing magazine reporter Wang Xiaolu were among them.

Read more: Citic Securities among five of China’s top brokerages under probe amid stock market slump

Caijing issued a statement confirming that Wang Xiaolu was taken away by police on Tuesday for questioning, but said it had not been told of the reasons for the probe.

Citic Securities also said it had not been told about the nature of the investigation.

But a source at the magazine said it could be linked to an article by Wang published on July 20 – soon after the government unleashed hundreds of billions of yuan to bail out the beleaguered market. In that article, Wang claimed the CSRC – a key part of the massive bailout – was preparing an exit plan. The regulator immediately denied the story.

The source said the magazine was under huge pressure to rectify its reporting practices after it published the article.

Mainland markets have been on a roller-coaster ride since mid-June and government efforts to intervene have had little success. The A-share market has fallen more than 22 per cent in the past five days.

A team of investigators led by the Ministry of Public Security was sent to the CSRC’s office on July 9 to uncover “malicious short-selling” that the government blamed for the turmoil.

Separately, four other securities firms also announced on Tuesday night that they were being investigated by the regulator. Haitong Securities, GF Securities, Huatai Securities and Founder Securities all said they had been notified by the regulator about the probe.


3 Comments on “China Xi’s Iron Fist in Dealing Blows at Stock Market Irregularities”

  1. Combo Jaxx says:

    Xi must be utterly merciless and relentless in his efforts to punish the market manipulators thoroughly. They’re nothing but evil saboteurs trying to set off massive capital exodus from China. China must also devalue Yuan to the tune of at least 25% to stay competitive and must stay vigilant against any Tianjin-blast-like incidents.


  2. Simon says:

    Unlike western economies were companies using people’s savings and pension fund on a national scale only 2% of Chinese population are involved in the country’s market shares which account for 80%. Any risk to the Chinese market does not have much impact on the country’s real economy unlike in the West.
    Commodity price has fallen and the Chinese are quite happy for it to fall further, this will allow China to buy commodity at really low value once the Beijing led AIIB officially operate and begins another phase of construction programs across Asia. Materials will be cheaply bought by China and development will be sold at a price were profit margin for China will be higher.


  3. Joseph says:

    Whatever the Chinese is doing to restore stability in their stock market right now, the Westerners are certainly not watching. They are busy vaguely to restore their own crumbling stock markets triggered by the ‘Chinese currency counter-attack’. While the “China’s economy is going down for sure” rhetoric is still going loud, their only crying foul right now is why China is not doing anything to bail them out of this ‘catastrophe’. Ironically, they are now calling to the much-hated Germany, the black sheep of Western Europe, to appeal to China to rescue the ‘World’ (i.e. Western) stock markets. Intriguingly, German stock market, because of its heavy association with China is not that badly hit.