Chinese Government on a Mission to Find Market Collapse Culprits

Recent months, quarters and years have passed by with the Chinese government openly proclaiming how it is looking to create a more market-oriented economy. With the recent stock market collapse and the subsequent sharp Chinese yuan devaluation, a big shadow has been cast over the government’s commitment to “liberalizing” China.

A witch hunt after no less than 197 individuals has began yielding confessions of questionable value as in the case of a relatively high-profile journalist who publicly admitted on state TV to have caused “panic and disorder” on the country’s stock market.

investigative journalism does not seem to be a highly regarded activity in China

Wang Xiaolu who is working for Chinese magazine Caijing admitted to being involved in the country’s stock market decline. We can leave to the imagination of our readers as to how was this “confession” achieved. Let’s just say that investigative journalism does not seem to be a highly regarded activity in China.

Earlier this summer, one of the major funds operating in the country, Citadel have learned first hand, that the government is all but willing to let hedge funds do “hedging”. Early August, the Chinese securities regulator has barred a number of stock trading accounts from trading due to stock price manipulation concerns.

The Ministry of Information campaign

In order to prevent the rapidly deteriorating condition of the patient (the Chinese stock market) from spreading into an all out bubble burst of epic proportions, the Chinese government has engaged in a number of activities.

Internet users have been scrutinized by the Chinese Ministry of Public Security, which engaged in an organized campaign to tackle market manipulation. Such investigations are necessary to a certain extent, but the charging of journalists with carrying out market disruptive campaigns and spreading rumors is raising a lot of doubts as to how is the Communist party willing to tackle the real issues plaguing the country’s economy.

With the housing sector still playing out a substantial role in Chinese growth, the government has committed yet another set of measures to boost property values. The Chinese housing ministry has stated that it is lowering minimum downpayment requirements on second home purchases to 20 percent from the current 30 percent rate.

Chinese authorities have so far resulted in the prosecution of 197 individuals for spreading false rumors online.

the Chinese government is doing its worst efforts yet when it comes to market liberalization

According to the Ministry of Public Security, these individuals have deliberately induced panic, by misinforming the public and distributing false statements about financial markets.

The article published by Mr Xiaolu has been scrutinized for not using public sources of information and instead relying on private conversations. Add to that the deductive reasoning used by the journalist and voila - a market manipulation of epic proportions is born.

Surprisingly the Chinese government is doing its worst efforts yet when it comes to market liberalization just before a vote by the IMF on whether to include the renminbi into the Special Drawing Rights (SDRs) currency basket used by the institution. The government has been committed to support this project as it is yet to capitalize on the size of the country’s economy and increase its role in international institutions.

Back in June, when the stock market rout was merely beginning, China Digital Times, which is one of the few independent websites covering developments in the country reported about a directive issued by the government to media companies.

The document “guided” publications to avoid in-depth analysis and advised against “speculating or assessing the stock market’s future direction”. The guidance also forbade the usage of words which have a negative connotation to describe market moves and the market itself.