China cracks down on market rumours with mass arrests

The Chinese authorities have taken unprecedented steps to silence criticism and calm markets in the wake of the “Black Monday” global markets crash, it emerged on Monday.

Almost 200 people - from journalists to brokers and regulators - have been arrested and even paraded in public in what Beijing said was a campaign against those who spread rumours and undermined faith in the country’s stock market.

After years of relentless growth the Chinese markets have crashed in recent weeks, pulling down global shares in their wake. The Shanghai Composite Index of shares has fallen by almost 40pc from its peak in June.

But the authorities appear to have now backed out of attempts to prop up shares, instead focusing on placing the blame on individuals.

The so-called market rumours had “caused panic, misled the public and resulted in disorders in the stock market or society”, said official news agency Xinhua, which is often seen as a mouthpiece for the Chinese government.

Among the victims of the crackdown was a journalist for Caijing Magazine, who Xinhua said “confessed that he wrote a fake report on the Chinese stock market based on hearsay and his own subjective guesses without conducting due verifications”.

He was also made to appear on state TV to apologise for his actions. The agency said that the reporter admitted he “seriously undermined the market confidence, and inflicted huge losses on the country and investors”.

Officials yesterday also urged companies themselves to do more to prop up the market, suggesting they offer higher dividends or cash buybacks to shareholders, which could support their share prices.

China’s currency, the yuan, has also dropped sharply in recent weeks, leading to claims the government was deliberately adjusting its price.

On Tuesday, in a letter to the Daily Telegraph, the country’s London embassy says the government itself had not been intervening to weaken the currency, a move which would artificially boost demand for Chinese exports.

“The depreciation of the yuan was not a result of government regulation but rather a self-adjustment of market forces,” writes spokesman Zhang Yangwu. “The Chinese yuan has been under the pressure of excessive appreciation against a basket of currencies.

“China has sufficient foreign exchange reserves and numerous economic regulation tools at hand... there is no need to prop up growth by stimulating export through currency depreciation.”

Also arrested was an official at the China Securities Regulation Commission. Xinhua said had had confessed to taking advantage of his position to help a company gain regulatory approval and increase its share price, in return for payment from the business’ boss.

The agency also said that four senior executives at leading brokerage Citic Securities had confessed to insider dealing.

The moves followed a centrally imposed a cap on local government borrowing, as concerns grow that excessive debts run up in parts of the public sector could be one potential flashpoint for a financial crisis across China.

Regional authorities have been told that debt levels can only increase by 3.8pc this year, limiting their new borrowing to 600bn yuan (£61bn), which would cap the total debt in the sector at 16 trillion yuan.

The Chinese state also appears to have put pressure on the country’s biggest banks, which it owns, to intervene in the currency markets, pushing up the value of the yuan.

Investors so far have been unimpressed by attempts to intervene, particularly in the stock markets.

“The huge stock market gains recorded previously were very much speculative, driven by leverage – people borrowing money to invest – rather than company fundamentals. We are now seeing an unwinding of these stock market gains and a long awaited reality check,” said Hugh Young from Aberdeen Asset Management Asia.

“The suspect policy responses from the government, particularly in terms of the curtailed attempt to prop up the stock market or the fat fingered approach to managing the currency, have not helped sentiment either.”