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"If I Don't Come Home, Look After My Wife": What Happens In China If You Sell Stocks

It’s probably safe to say that at this point, Beijing is fed up with stocks. 

The thing about equities that has the Politburo so vexed is that it turns out they can go down as well as up, and because stocks aren’t people, you can’t threaten them or arrest them, although China did its best to do both by throwing CNY1 trillion at the problem and by halting nearly three quarters of the market at the height of the meltdown.

Ultimately, none of it worked.

Fortunately for Chinese authorities, carbon-based lifeforms still play an active role in China’s stock market even if they’ve been all but replaced by vacuum tubes elsewhere. These carbon-based lifeforms are responsive to threats and intimidation which is why last week, fearing that the plunge protection effort would end up becoming a black hole, China started arresting people. 

And not just a few people or any people, but in fact hundreds of people and important people.

There was Xu Gang, the CITIC executive. And CSRC official Liu Shufan. And let’s not forget poor Wang Xiaolu, the Caijing reporter who, clearly under duress, made the following public confession after suggesting in a story that China’s plunge protection team might be considering an exit from the market (which is of course true): “I shouldn’t have released a report with a major negative impact on the market at such a sensitive time. I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss. I regret . . . [it and am] willing to confess my crime.” 

Now, China is rounding up other industry players and taking them into custody so that they might “assist with inquiries.” As Reuters reports, for some fund managers, being summoned to to provide such “assistance” is tantamount to getting “sent for” by the Italian mob. Here’s more:

Investigations by Chinese authorities into wild stock market swings are spreading fear among China-based investors, with some unsure if they are simply helping with inquiries or actually under suspicion, executives in the financial community said.

 

Chinese fund managers say they have come under increasing pressure from Beijing as authorities' attempts to revive the country's stock markets hit headwinds, with some investors now being called in to explain trading strategies to regulators every two weeks.

 

The authorities' meddling has unnerved many investors, leaving them questioning China's commitment to liberalizing its capital markets and the long-term future of the country's stock markets themselves.

 

Adding to those concerns is the fact that authorities have also been probing investment funds' trading strategies, looking into whether they have been engaging in alleged "malicious" short-selling or market manipulation.

 

Sources told Reuters that the increased tempo of meetings with regulators has become intimidating, especially for foreign funds used to relying on their Chinese brokers to represent them when dealing with Beijing.

How intimidating, you ask? This intimidating:

One manager at a major fund - part of the "national team" of investors and brokerages charged with buying stocks to revive prices – said a friend, also an executive at a large fund, was recently summoned for a meeting with regulators, along with all other mutual funds that had engaged in short-selling activity.

 

"If I don't come back, look after my wife," his friend told him, handing the manager his home telephone number.

Because there's little we could add to make that any more tragically absurd than it already is, we'll simply close with the following clip.