China on a Mission to Crack Down Insider Trading and Market Manipulation

The China Securities Regulatory Commission said it will crack down on insider trading in over-the-counter markets, accounting fraud in mergers and acquisitions, as well as target trading by brokerage employees who use non-public information.

“False statements, insider trading and market manipulation” have “gravely disturbed the market order,” the CSRC said on its Web site on Friday.

Earlier this year the CSRC announced a margin lending probe, suspending three of the biggest brokerages in the country because they allowed customers delay repaying. As a result, the Shanghai Composite Index sank 7.7 percent the net day.

These new measures come at a key point in China’s economic ascension. The Shanghai index has skyrocketed 114 percent over the past year based on rumors that the government may step up efforts to bolster the economy. Because of this, however, many are speculating that stocks are vulnerable to a sell-off.

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But with plenty of talk about whether or not the Chinese equities are a good investment, there’s no doubt there is a mostly sunny outlook on the future of the market. But investors agree that this could be another one of those “boom and bust” scenarios.

One analyst cites bank and bond market new pension for short-term lending, the Chinese banks’ poor lending history and the overestimation of the nation’s ability to absorb stimulus as reasons that the economy is shaky at best.

Which is also a key concern with the regulators overseas. Earlier this month CSRC Chairman Xiao Gang said on the organization’s Web site that investors should be cautious and evaluate stock market risks.

At the moment, though, regulators are keeping their cards close to the chest, aware of the delicate line between stoking commerce and instigating a speculation-based market. “The regulator has no problem with the concept of a bull market, but they are going to have little patience for people breaking the law,” Michael Shaoul, chief executive officer of Marketfield Asset Management in New York, told the Sydney Morning Herald by email.

Khuram Aziz
Khurram Aziz is a freelance writer based out of London, England.