China Placing Tight Controls on Markets

Xiao Gang, Chairman, Bank of China, People's Republic of China at the Annual Meeting of the New Champions in Tianjin, China 2012. Photo courtesy of World Economic Forum
Xiao Gang, Chairman, Bank of China, People’s Republic of China at the Annual Meeting of the New Champions in Tianjin, China 2012. Photo courtesy of World Economic Forum

In an effort to resuscitate China’s newly born financial markets which have taken a turn for the worse, China’s Securities Regulatory Commission has introduced a series of restrictions on those markets.

Together with the People’s Bank of China, the CSRC has been introducing the following measures: limiting stock index futures trading; banning short selling; cutting margin ratios; forbidding insiders from selling large blocks of stocks; and held a number of hedge fund managers for placing bets against the market.

The CSRC has also attempted to introduce a “circuit breaker” mechanism in order to curb the amount of losses the market can suffer. This experiment proved a failure par excellence when, only after three days with the “circuit breaker” in place the CSRC had to remove the “circuit breaker” in the wake of three days of heavy selling as investors all ran for the hills simultaneously.

The “circuit breaker” fiasco seems to have ended badly for the chairman of the CSRC, Xiao Gang. Gang, 57, was forced to resign when this measure proved inadequate to stem the tide of a continuing destabilization of the Chinese market. It is believed that the end of Gang could also mark the beginning of a new time of uncertainty for financial companies operating in China.

Published by Debbie Jacobs

Debbie has dual degrees in economics and writing. While she worked for a few years in the financial sector, she has found her true love writing about finance for financial journals and newspapers. Contact Debbie at debbie(at)hedgecrunch.com.