China Scrutinizes Active Stock Traders as Xi Hosts Summit

  • Brokerages told to notify clients of increased monitoring
  • Xi will host world leaders in Beijing for Belt and Road Forum

China is stepping up scrutiny of stock traders as the government prepares to host representatives from more than 100 countries at a summit in Beijing attended by President Xi Jinping.

The nation’s equity exchanges told brokerages to notify clients that regulatory scrutiny will increase through May 16 as China hosts the Belt and Road Forum for International Cooperation, according to people with direct knowledge of the matter, who asked not to be identified discussing policies that haven’t been announced publicly. Authorities will apply extra scrutiny to active traders, investors who control large sums of money and accounts that have already been flagged for special monitoring, the people said. State-backed funds stand ready to buy shares if needed, they said.

The instructions, delivered at the behest of China’s securities regulator, follow a pattern of market intervention during tightly-scripted government events. The Belt and Road summit -- part of Xi’s push to increase trade ties across Asia, Europe, the Middle East and Africa -- kicks off Sunday against the backdrop of rising investor angst. The Shanghai Composite Index headed for its longest losing streak in three years on Tuesday amid concern that a separate regulatory crackdown on leverage will curb demand for shares.

Read more about the clampdown on leverage here

The CSRC didn’t immediately respond to a faxed request for comment. Exchanges in Shenzhen and Shanghai declined to comment.

Xi will attend the Belt and Road event’s opening ceremony and will host a roundtable summit with 28 foreign leaders, including Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan, China’s foreign minister told reporters at a briefing last month in Beijing.

The government has been said to intervene in markets during past events of political importance, including Xi’s appearance at the World Economic Forum in Davos in January and the last two annual meetings of Chinese lawmakers in Beijing. Authorities may be especially keen to project an image of stability in 2017 as they prepare for a twice-a-decade Communist Party leadership reshuffle toward year-end.

Volatility in the Shanghai Composite has fallen to levels not seen since the earliest days of China’s stock market in the 1990s, according to data compiled by Bloomberg. Daily losses in the benchmark gauge have exceeded 1 percent in just one of the past 96 trading sessions.

Chinese regulators have faced criticism for past efforts to intervene in the stock market, most notably their campaign to halt a crash in the summer of 2015. During that episode, authorities allowed hundreds of companies to halt trading in their shares and banned major stockholders from selling, measures that contributed to MSCI Inc.’s decision to exclude China’s domestic equities from its global indexes.

— With assistance by Steven Yang, Tian Chen, and Gary Gao

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