Bad news for Chinese capital markets

The first sentence of this news story gives me a sinking feeling: “China’s securities regulator has called for the improvement of systems designed to manage news, information and public opinions in relation to the capital market.”

Translation: more happy talk and less carping negativity, all backed up by the power of the state. Many years ago, Sebastian Heilmann identified this contradiction in the mission of the China Securities Regulatory Commission: on the one hand, it is supposed to ensure market integrity and protect investors, but on the other hand, it is supposed to help listed companies and ensure that markets keep going up. The first goal obviously requires a free information environment, in which bad news as well as good can circulate, but when faced with a conflict between the first and second missions, it has consistently sacrificed the first. For example, the CSRC periodically announces its intention to crack down on rumors, but I am not aware that it has ever done so when the “rumors” were making markets surge. Business journalist Wang Xiaolu was detained in 2015 (by police; the CSRC has no authority to do this) and forced to confess on television to criminally “colluding with others and fabricating and spreading fake information on securities and futures market,” allegedly causing markets to plunge. But I don’t know of anyone forced to confess on television to spreading rumors that caused markets to go up.

Clearly, from the CSRC’s point of view, the proper function of financial and securities markets is to go up.

Posted in: Law

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