Beijing ends $200bn buying spree after China share market falls 37% anyway

There’s something deep in the communist DNA which believes man is all-powerful. A belief that God is an invention and religion merely the “opium of the masses”. Allied to this is a deep suspicion of the power of the market – the “invisible hand” which Adam Smith wrote about back in 1776. Those cornerstones of communist thinking took an awful pounding this month. For a couple decades, China’s complex marriage of communist politics with free enterprise economy performed beyond expectations. But much maturing is required as evidenced by the massive $400bn which Beijing’s Mandarins blew in attempts to control the currency and support an overheated stock market. Despite half of that being thrown at the share market, prices still fell 37%. An expensive lesson. One which could have been avoided by removing the blinkers and simply perusing Smith’s Wealth of Nations. – Alec Hogg

An investor looks at a newspaper in front of an electronic board showing stock information at a brokerage house in Beijing, August 27, 2015. China's turbulent stock markets rose on Thursday, helped by a strong rebound on Wall Street on expectations that the U.S. Federal Reserve will respond to days of China-led volatility by delaying an expected interest rate rise next month. REUTERS/Jason Lee
An investor looks at a newspaper in front of an electronic board showing stock information at a brokerage house in Beijing, August 27, 2015. China’s turbulent stock markets rose on Thursday, helped by a strong rebound on Wall Street on expectations that the U.S. Federal Reserve will respond to days of China-led volatility by delaying an expected interest rate rise next month. REUTERS/Jason Lee

By Jamil Anderlini in Beijing

China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials.

For two months, a “national team” of state-owned investment funds and institutions has collectively spent about $200bn trying to prop up a market that is still down 37 per cent since its mid-June peak.

China’s leaders feel they mishandled the stock market rescue efforts by allowing too much information to become public, according to senior regulatory officials speaking at a meeting late on Thursday – an account of which has been seen by the Financial Times.

Last week’s equities collapse, which prompted a rout in global markets, was partly blamed on authorities’ apparent decision to refrain from the share purchases they had been making since early July.

See also: Martin Wolf: Why Mr Market’s worries about China makes a lot of sense

After standing on the sidelines for more than a week, the government resumed large-scale stock-buying in the last hour of trade on Thursday. This helped to lift the Shanghaibenchmark index from a small loss to end the day up more than 5 per cent. The market rose by almost 5 per cent again on Friday.

Traders and officials said the latest intervention was aimed at providing a “positive market environment” in preparation for a big military parade this week [Thurs Sept 3]to celebrate the 70th anniversary of the “victory of the Chinese people’s war of resistance against Japanese aggression”.

Senior financial regulatory officials insist that this was an anomaly, and that the government will refrain from further large-scale buying of equities.

Instead, authorities are planning to sharpen their focus on investigating and punishing individuals and institutions they believe have taken advantage of the state bailout to make profits or have obstructed the government’s attempts to shore up the market.

Late last week, the country’s securities regulator summoned senior officials from 19 brokerages, equity exchanges, futures exchanges and government-controlled industry associations, and ordered them to step up oversight of the markets.

The regulator said 22 cases of insider trading, market manipulation and “spreading market rumours” had been handed over to the police.

Last Tuesday, following a 22 per cent fall in China’s stock market over four trading days – the worst drop for almost 20 years – police detained 11 people suspected of “illegal market activities”.

They included eight managers from Citic Securities, one of China’s largest investment banks; two officials from the China Securities Regulatory Commission; and a journalist from the respected financial magazine Caijing.

Four other large Chinese brokerages have said they are being probed by regulators.

In a worrying signal for global investors with a presence in China, some officials have argued strongly for a crackdown on “foreign forces”, which they say have intentionally unsettled the market.

“If our own people have collaborated with foreign forces to attack the soft underbelly of the market and bet against the government’s stabilisation measures then they should be suspected of harming national financial security and we must take resolute measures to subdue them,” said an editorial in the state-controlled Securities Daily newspaper last week.

One Hong Kong-based hedge fund manager, who asked not to be named, said: “Global investors are listening to the language of retribution and watching this witch-hunt going on, and they are trying to understand what this means for them.”

Copyright The Financial Times Limited 2015

(c) 2015 The Financial Times Ltd. All rights reserved. Please do not cut and paste FT articles and redistribute by email or post to the web.

Visited 43 times, 1 visit(s) today