Beijing has accused brokers of manipulating share prices during China’s recent stock market plunge and launched a crackdown against unlicensed companies that financed speculative trading. The police ministry said investigators had found “evidence to suspect that individual trading companies are illegally manipulating securities and futures exchanges”. It said in a statement that a criminal investigation was under way but gave no details of which firms were being looked into.
The move appears to be aimed at deflecting blame away from the ruling Communist party for the trillions of dollars lost by investors after China’s market benchmark plummeted 30% since peaking in mid-June. Drastic official efforts over the past two weeks, including a ban on sales by executives and big shareholders, appear to have at least temporarily halted the decline that wiped out $3.8tn (£2.45tn) in investor wealth.
On Monday, the benchmark Shanghai Composite Index closed up 2.4%, its third daily rise in succession, although it remained 23% below the peak of 12 June. The stock market regulator ordered brokers to sever all ties with the unlicensed companies that lend money to finance trading. It also accused brokers of improperly allowing customers to trade without giving their real names or subdivide accounts to allow others to use them to trade.
The stock market boom began last year after the state press said shares were cheap, which led investors to believe Beijing would intervene to prop up prices if needed. But recent changes in banking regulations led to fears among investors that the government may withdraw its support and the market could begin to collapse. Regulators also deepened investors’ anxiety by tightening controls on lending to finance trading.
Novice investors who rushed into the market near the peak have suffered heavy losses, souring sentiment towards stock investment. The price collapse could frustrate the Communist party’s plans to encourage the public to buy stocks and raise money for state companies to pay off debts and become more competitive. More than 1,000 of the 2,802 companies traded on the mainland’s exchanges in Shanghai and Shenzhen have suspended trading in their shares following the plunge in prices. That has left small investors locked into shares that some are under pressure to sell to repay loans.
Carl Weinberg, of High Frequency Economics, said in a report: “It remains to be seen how the market holds up once all the artificial impediments to selling are withdrawn.” Official media outlets have blamed the market slide on short-selling, rumours and misconduct, possibly by foreign investors. In the order to brokers to sever ties with unlicensed companies providing loans to finance trading, the regulator said there were signs of a renewed burst of illegal activity as players tried to exploit the market bounce over the past three trading days.
The activity was “to the detriment of the legitimate rights and interests of investors, seriously disrupting the stock market order”, the regulator said. “As the market has stabilised, these illegal phenomena appear to have momentum to make a comeback that might again jeopardise the smooth operation of the stock market.” A joint Communist party-cabinet body that oversees the internet ordered websites to remove advertisements from unlicensed companies offering loans for share trading, agencies report.