Faced with a renewed stock market slide that has wiped out $5 trillion in trading value, China is again on the prowl for scapegoats.
Authorities announced a probe of allegations of market malpractice involving the stocks regulator on Tuesday, while the official Xinhua News Agency called for efforts to “purify” the capital markets. The news service also carried remarks by a central bank researcher attributing the global rout to an expected Federal Reserve rate increase.
The Shanghai Composite Index has plunged more than 40 percent from its peak, after concerns over the Chinese economy helped snap a months-long rally encouraged by state-run media. Authorities have repeatedly blamed market manipulators and foreign forces since the sell off began in June and led officials to launch an unprecedented stocks-support program.
Now, after suspending that program, the administration has embarked on a new round of allegations and fault-finding.
“The authorities have been too involved in the stock market and now they’re trying to pass the responsibilities to others,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. “In fact, they have to be responsible for the market crisis. It’s the authorities trying to act like a referee and a player at the same time.”
Police are investigating people connected to the China Securities Regulatory Commission, Citic Securities Co. and Caijing magazine on suspicion of offenses including illegal securities trading and spreading false information, Xinhua reported.
They’re probing suspects linked to the CSRC, including a former employee, over insider trading and forging official document stamps, Xinhua said. Eight people at Citic Securities are suspected of illegal securities trading and the Caijing employees are under investigation for allegedly fabricating and spreading fake stock and futures trading information.
Citic Securities said Wednesday in a statement posted to the Shanghai stock exchange that it hasn’t received notice related to the report and said the company’s operating as normal. Caijing in a statement Wednesday confirmed a reporter had been summoned by police. The magazine said it didn’t know the reason and would cooperate with authorities. Calls and a fax to the CSRC went unanswered.
Meanwhile, Xinhua published a commentary urging stricter enforcement to cleanse the markets.
“We have reason to believe that more criminals and their hidden crimes will be exposed,” it said. “We also believe judicial departments will investigate thoroughly and impose punishments no matter who is involved in crimes.”
The probes will help make the “Chinese stock market a just place and give the market a future that is healthy and stable,” it said.
Another Xinhua report citing Yao Yudong, head of the People’s Bank of China’s Research Institute of Finance, attributed the global market rout to expectation of a Fed rate increase in September, not concern about the Chinese economy.
Separately, Haitong Securities Co., GF Securities Co., Huatai Securities Co. and Founder Securities Co. -- four of China’s largest brokerages -- said they’re being investigated by the CSRC on suspicion of failing to comply with identity verification and “know-your-clients” requirements, according to statements to the Hong Kong and Shanghai exchanges Tuesday.
“The company will fully cooperate with the CSRC and strictly fulfill any obligations of information disclosure under regulatory requirements,” Haitong said in its statement. “So far, the business of the company is under normal operations.”
GF, Huatai and Founder made similar pledges of cooperation with the probes in their filings.
The actions ease investors’ concerns by showing that the government will prosecute activities that could destabilize the market, said Han Meng, a senior researcher at the Chinese Academy of Social Sciences’ Institute of Economics in Beijing. “At this volatile moment, it’s very important for authorities to demonstrate the determination to crack down on illegal activities that could disrupt the market,” Han said.
In July, the Ministry of Public Security said it’d help the CSRC investigate evidence of “malicious” short selling of stocks and indexes. Vice Public Security Minister Meng Qingfeng visited the regulator’s offices in Beijing, in a pointed message to violators.
Hu, the economics professor, said government cheerleading for the rally helped push the market to an unreasonable level.
“The authorities carry the greatest responsibility for the crisis because they tried to push forward the market by intervening and encouraging the public to go mad in the stock market,” Hu said.
For more, read this QuickTake: China’s Managed Markets
— With assistance by Keith Zhai, and Jonathan Browning