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Chinese Finance Firms Face Anxiety, Arrests

Chinese Finance Firms Face Anxiety, ArrestsChinese Finance Firms Face Anxiety, Arrests

The high-drama highway arrest of a prominent hedge fund manager, seizures of computers and phones at Chinese mutual funds, the investigations of the president of Citic Securities Co. and at least six other employees, and now, add the probe of China’s former gatekeeper of the IPO process himself.

The arrests or investigations targeting the finance industry in the aftermath of China’s summer market crash have intensified in recent weeks, creating a climate of fear among China’s finance firms and chilling their investment strategies, Bloomberg reported.

At least 16 people have been arrested, are being investigated or have been taken away from their job duties to assist authorities, according to statements and announcements.

The authorities’ goal is to root out practices such as insider trading as part of China’s anti-corruption campaign, and a desire by "some in the political leadership to find scapegoats to blame" for the market crash, according to Barry Naughton, a professor of Chinese economy at the University of California in San Diego.

“Together these are creating uncertainty and anxiety that can only undermine the effort to make these markets work better,” he said.

Chinese authorities have long encouraged funds and brokerages to create new investment products to keep the finance industry along a development path. But that has been halted by regulators’ raids, arrests by police and anti-corruption investigations of even regulators themselves by the Communist Party’s disciplinary committee.

The government’s response to the market crash was intervention: State-directed purchases of shares, a ban on initial public offerings and restrictions on previously allowed practices, such as short selling and trading in stock-index futures.

Financialtribune.com