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1 Talking Point 6 Week in 60 Seconds 7 China Consumer Week in China 8 Banking and Finance 9 China and the World 11 Energy and Resources 13 Property 15 Environment 11 September 2015 16 Society and Culture Issue 295 19 And Finally www.weekinchina.com 20 The Back Page The usual suspects m o c . n i e t s p e a t i n e b . w w w In their efforts to apportion blame for the stock market’s crash, regulators find a familiar target: investors who went short Brought to you by Week in China Talking Point 11 September 2015 The blame game China’s regulators search for stock market saboteurs “If it wasn’t for those short-sellers”: Beijing seeks culprits after stock turmoil in Shanghai and Shenzhen ompleted in 1916, the Asia operational experience – and sold stock market, as well as a large num- CBuilding in Shanghai enjoyed shares in them on the local bourse. ber of Chinese lenders. (The Qing the city’s most prestigious address: Money from all over China flew into government tried to intervene by No. 1 the Bund. Later the Asian head- these rubber stocks. A lively deriva- holding local brokers accountable, quarters of the oil giant Shell, it cur- tives and short-selling market also accusing them of helping specula- rently houses China Pacific developed. tors to short-sell the market.) Insurance. But it was actually built The standout performer was But the punitive action was un- by the British merchant George McBain’s Langkate, fuelled by lav- able to prevent an unexpected McBain, who is said to have made a ish advertisements in Shanghai’s twist. A government official had in- killing on the Shanghai market be- newspapers, even though McBain vested heavily in Langkate with fore a spectacular crash in 1910. was yet to grow a single rubber public funds earmarked for a rail- At the time Henry Ford had just tree. Langkate’s share price surged way in Sichuan. The Sichuan firm begun mass-producing his Model T tenfold in less than a month after was forced to sell its track to foreign cars. Rubber prices had surged, as its debut. investors. The move triggered had the profits of rubber producers. In June 1910 the euphoria came protests in the vast province, which P h o t o In Shanghai groups of foreign fin- to an abrupt halt after restrictions in turn led to the revolution of 1911, S o u r anciers set up rubber firms – claim- were impsed on rubber imports to and the eventual fall of the Qing Dy- c e : R e ing to have production bases in the United States. Rubber stocks nasty (see WiC282). u t e r s Malaysia, but in reality with little crashed, bringing down Shanghai’s According to today’s Chinese 1 Week in China Talking Point 11 September 2015 media, this was the “stock crisis that Adding to the list of bogeymen felled an empire” and the episode were 197 internet users accused of has been recalled in recent weeks as spreading rumours; several execu- a reminder of the consequences of tives at listed firms alleged to have mishandling a financial crisis. insider-traded; and even two former Perhaps the historical precedent officials from the CSRC itself. also explains why regulators have Regulators have also suspended unleashed a fierce campaign a number of trading accounts as against the present-day short-sell- part of their probe into what they ers and market manipulators they have labelled as potentially “mali- claim to be responsible for the melt- cious” short-selling. down that has wiped out nearly half Unhelpfully there has been little of the value of the A-share market CSRC Chairman Xiao Gang attempt to define publicly what since June. “malicious” behaviour actually en- to meditate, switching off her tails. But the only foreign account Who has been identified so far? phone over the weekend. thus far affected is the China unit of The first salvo came from an edito- The quest to hunt down offend- Citadel. (The domestic media has rial published by the Financial News ers in the domestic securities in- been quick to point out that the against “foreign crocodiles” (a term dustry has been fierce. Several local Chicago-based investment group is taken from the Hong Kong media, brokerages have been mired in the being advised by a certain Ben which originated in the Asian fi- regulatory probe but Citic Securities Bernanke.) nancial crisis). looks to have been the worst hit. Titled “Fight malicious short-sell- China’s biggest brokerage now has In what ways can investors short- ing without delay”, the PBoC-run eight executives detained for inves- sell Chinese stocks? newspaper singled out the Ameri- tigation. Their offences are not yet Until 2010 the A-share market was a can firm Morgan Stanley, for mak- known, although Xinhua has re- one-way bet (i.e. you could go long ing “malicious remarks carelessly” ported on rumours that they only), but that changed that year and harbouring “ulterior motives” “ganged up with foreign hedge when pilot programmes were intro- in reversing its previously bullish funds to short-sell Chinese stocks”. duced to allow bearish bets in the forecasts on Chinese stocks. The state-run Securities Daily re- equity market. “Why are the international in- ported that other homegrown insti- More sophisticated derivatives vestment banks fluffing the rain tutions have been colluding with have been developed since then. clouds?” Financial News asked. “For foreign investors to take advantage For example, the first option trad- the interest groups behind them or of the central government’s stock ing product was launched in to short-sell maliciously in order to market interventions to make gains. Shanghai in February. This ETF- disrupt China’s economic reforms?” Rumours then began to spread based (exchange-traded fund) op- Unnerving China's foreign in- that Citic Securities chairman tion tracks the SSE50 index, or 50 vestment community further was Wang Dongming had fled to the US, of the most heavily weighted speculation that Li Yifei, the chair- forcing the state-owned giant into stocks on the Shanghai bourse, and woman of the London-listed hedge a statement rebuffing the specula- offers investors a hedging tool for fund giant Man Group’s China op- tion. Wang’s brother Wang Boming, trading the index heavyweights. eration, had been taken into cus- the founder of influential financial (Options on individual stocks, or tody last week. Remarks from Li’s magazine Caijing, might have lost put warrants, were permitted husband, who told reporters the some sleep too. A journalist from briefly in 2011 but then withdrawn businesswoman had been locked in Caijing was arrested and paraded on by the authorities on concerns of meetings with regulators in Beijing, state television last month, leading excessive speculation.) added to the confusion. to an on-air confession. His wrong- The second channel for short-sell- Li then emerged from her mys- doing? He wrote a story in July that ing is via the Shanghai-Hong Kong terious week-long absence this claimed that the China Securities Stock Connect, which has allowed P h o t o week, posting on her weibo that she Regulatory Commission (CSRC) was investors in either city to invest in S o u r had attended “industry meetings” pondering a halt to its interven- the other's market since last No- c e : R e but also telling the Financial Times tions, which were aimed at jacking vember. A total of 414 Shanghai u t e r s she had then gone to the mountains up the market. stocks – out of 568 designated for 3 Week in China Talking Point 11 September 2015 the Stock Connect scheme – are available for short-selling. But the Planet China daily limit for each stock is small: Strange but true stories from the new China capped at 1% of the holdings of all foreign investors through Stock Connect. Brokers also have to file Over the years the Apple Daily newspaper has run their short position reports every many reports on fake food in China. But even the most cynical staff at week. “Their trading is not only the Hong Kong paper seem to have been surprised when it heard of a peanuts in terms of size but also family from Guangdong province that had dined on a rice strain it hadn’t heavily restricted, so it can’t call the tasted before. Upon closer inspection, the “rice” they had bought from a local market was revealed as a bag of many thin strips of paper, each tightly market’s tune,” the South China rolled-up to look like the desired grain. Morning Post has noted. As a production process, it seems almost as labour-intensive as rice Then there are index futures. The farming itself. But this isn’t the first fake rice scandal to hit China this year. first of these contracts, which tracks Earlier in May ‘rice’ made from potato and resin made its way across Asia. the large-cap CSI300 Index, was in- Whilst the potato provided a little nutritional value, any calorific benefit was troduced in April 2010. It was not soured by the resin, which formed a skin like plastic when boiled up. Then until this April that two more prod- again, some netizen wonder if the ‘paper’ rice is a hoax, pointing to a similar ucts – based on the CSI500 Index story in 2007 that wrongly claimed steamed buns were made from paper and SSE50 Index – were added to too.

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