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Investors talk in front of an electronic board showing
stock information at a brokerage house in Shanghai, China, Sept 9, 2015. Photo:
Reuters
(Page 1 of 3) - NEXT PAGE | SINGLE PAGE
BEIJING — The police have been dropping in on investment firms and
downloading their transaction records. Senior executives at China’s biggest
investment bank have been arrested on suspicion of illegal trading. A business
journalist has been detained and shown apologising on national television for
writing an article that could have hurt the market.
The Prize Money
The Communist Party’s response to China’s monthslong stock market crisis has been swift and forceful. In addition to spending as much as US$235 billion (S$333 billion) to buy shares and bolster prices, the authorities have imposed a range of extraordinary restrictions on the sale of stocks — and backed them with the full weight of a security apparatus usually more focused on political dissent than equity trades.
The strategy appears to have succeeded, at least for now, in softening the impact of the Chinese market’s biggest rout since the global financial crisis of 2008. But the new limits on trading and the efforts by the police and regulators to enforce them have unsettled investors at home and abroad who are unsure exactly what types of transactions are being banned or criminalised.
After decades of watching China make slow but steady progress in building Western-style financial markets, many are now asking whether the party is reversing course — and whether Chinese officials are willing to tolerate the sometimes turbulent waves of selling that are inherent to such markets.
“What’s happening in China is definitively spooking people,” said Ms Dawn Fitzpatrick, the chief investment officer of O’Connor, a US$5.6 billion hedge fund owned by UBS. “They’ve set themselves back a couple of years” in terms of attracting investment, she added.
Anxiety in the industry surged last week after Ms Li Yifei, the prominent China chief of the world’s largest publicly traded hedge fund, disappeared and Bloomberg News reported that she had been taken into custody to assist a police inquiry into market volatility. Her employer, the London-based Man Group, did little to dispel fears, declining to comment on her whereabouts.
Ms Li resurfaced on Sunday and denied that she had been detained, saying that she had been in “an industry meeting” and “meditating” at a Taoist retreat. But many in the finance sector are unconvinced.
“There is, generally, a very nervous atmosphere, as people wait to see the outcome of some of these investigations and how deep the rabbit hole goes,” said Effie Vasilopoulos, a partner at the Hong Kong office of the Sidley Austin law firm who works with hedge funds that invest in mainland China. “How wide a net is the government going to cast in terms of looking at foreign firms and their operations — not just onshore, but also offshore as well?”
The authorities are canvassing industry players in several cities, including Beijing and Shanghai. Police officers under the Chinese Ministry of Public Security specialising in economic crimes have joined agents from the nation’s securities regulator on inspections of investment funds and brokerage firms. The authorities are combing records and questioning transactions that appear to profit from or contribute to a falling market, according to employees of investment firms who, like others who spoke anonymously, said they feared reprisals.
A Chinese day trader buying shares at a local brokerage house in Beijing. The new limits on trading and the efforts by the police and regulators to enforce them have unsettled investors, who are unsure exactly what types of transactions are being banned or criminalised.
The Prize MoneyThe Communist Party’s response to China’s monthslong stock market crisis has been swift and forceful. In addition to spending as much as US$235 billion (S$333 billion) to buy shares and bolster prices, the authorities have imposed a range of extraordinary restrictions on the sale of stocks — and backed them with the full weight of a security apparatus usually more focused on political dissent than equity trades.
The strategy appears to have succeeded, at least for now, in softening the impact of the Chinese market’s biggest rout since the global financial crisis of 2008. But the new limits on trading and the efforts by the police and regulators to enforce them have unsettled investors at home and abroad who are unsure exactly what types of transactions are being banned or criminalised.
After decades of watching China make slow but steady progress in building Western-style financial markets, many are now asking whether the party is reversing course — and whether Chinese officials are willing to tolerate the sometimes turbulent waves of selling that are inherent to such markets.
“What’s happening in China is definitively spooking people,” said Ms Dawn Fitzpatrick, the chief investment officer of O’Connor, a US$5.6 billion hedge fund owned by UBS. “They’ve set themselves back a couple of years” in terms of attracting investment, she added.
Anxiety in the industry surged last week after Ms Li Yifei, the prominent China chief of the world’s largest publicly traded hedge fund, disappeared and Bloomberg News reported that she had been taken into custody to assist a police inquiry into market volatility. Her employer, the London-based Man Group, did little to dispel fears, declining to comment on her whereabouts.
Ms Li resurfaced on Sunday and denied that she had been detained, saying that she had been in “an industry meeting” and “meditating” at a Taoist retreat. But many in the finance sector are unconvinced.
“There is, generally, a very nervous atmosphere, as people wait to see the outcome of some of these investigations and how deep the rabbit hole goes,” said Effie Vasilopoulos, a partner at the Hong Kong office of the Sidley Austin law firm who works with hedge funds that invest in mainland China. “How wide a net is the government going to cast in terms of looking at foreign firms and their operations — not just onshore, but also offshore as well?”
The authorities are canvassing industry players in several cities, including Beijing and Shanghai. Police officers under the Chinese Ministry of Public Security specialising in economic crimes have joined agents from the nation’s securities regulator on inspections of investment funds and brokerage firms. The authorities are combing records and questioning transactions that appear to profit from or contribute to a falling market, according to employees of investment firms who, like others who spoke anonymously, said they feared reprisals.
A Chinese day trader buying shares at a local brokerage house in Beijing. The new limits on trading and the efforts by the police and regulators to enforce them have unsettled investors, who are unsure exactly what types of transactions are being banned or criminalised.
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