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China economy

Financial crime a priority for China’s police under new boss Zhao Kezhi

Public security ministry vows to come down hard on those who put the nation’s financial security at risk

PUBLISHED : Tuesday, 07 November, 2017, 7:43pm
UPDATED : Wednesday, 08 November, 2017, 10:21am

China will redouble its efforts to combat financial wrongdoings – from illegal fundraising to stock market manipulation – in a bid to safeguard “national financial security” as demanded by President Xi Jinping earlier in the year, the Ministry of Public Security said on Tuesday.

In a statement on its website, the police authority vowed to keep the pressure high on those who commit financial crime and also to work with other departments to reduce financial risk.

The policy announcement was the first since Zhao Kezhi, a close ally of Xi, was named the country’s new police chief at the weekend.

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“There are many sources of risk in China’s finance sector due to crimes such as illegal fundraising,” the statement said, adding that “the task of cracking down on financial crime and preventing associated risks remains arduous”.

China’s policy system would “actively participate” in the prevention of financial risks, and focus on financial crimes relating to the internet, securities and futures markets, and financial institutions, it said.

The statement sends a clear message that the ministry will continue to play a major role in policing China’s financial sector.

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The public security ministry had been relatively detached from investigations into financial misdemeanours before a crackdown initiated by Xi after the stock market rout in the summer of 2015.

Officials working at financial regulatory bodies were arrested, brokerage firm executives and star investors were jailed, and tycoons like Xiao Jianhua, the controller of Tomorrow Group, and Wu Xiaohui, chairman of Anbang Insurance Group, disappeared from public view to “help” investigations.

Since then, the police have solved a number of financial crime cases and prosecuted the guilty parties, the statement said.

Earlier this year, Xu Xiang, a hedge fund manager with Zexi Investment was sentenced to 5½ years in prison and fined a record 11 billion yuan (US$1.66 billion) for his role in manipulating the stock market in 2015.

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Similarly, in June, Eastern Dragon Trade Co, a high-frequency trading firm controlled by two Russians, was fined 300 million yuan and ordered to pay back 389 million yuan in illegal gains after it was found guilty of manipulating stock index futures.

The ministry’s statement also highlighted the successful dismantling of Ezubao, an illegal fundraising scheme that duped more than US$7.7 billion from 900,000 investors across the country in just 18 months. Its ringleader, Ding Ning, was sentenced to life in prison.

The news that the police authority plans to play a more active role in financial crime comes after reports of increased numbers of arrests for such offences.

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According to police in southern China’s Guangdong province, the number of people arrested in connection with a financial crime in the year through August rose 134 per cent from the same period of 2016. They did not provide an absolute figure.

Chinese police investigated 2,826 pyramid scheme cases last year, nearly 20 per cent more than in 2015. In July, more than 200 employees of Shanxinhui, a self-styled investment fund – redefined by the police as a Ponzi scheme – were arrested. Duped “investors” in the scheme had earlier taken to the streets of Beijing to protest against the closure of the fund, a rare event in the Chinese capital.

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“Financial security has been a key theme since the National Finance Work Conference in July,” Raymond Yeung, chief Greater China economist of ANZ Bank in Hong Kong, said.

As such, the police authority was trying to play its part in maintaining financial stability, he said.

As well as the increased scrutiny from the public security ministry, China’s financial regulators have called for a tougher stance on financial wrongdoing.

In an article published last week, central bank governor Zhou Xiaochuan called for all financial businesses to be licensed, to help eliminate risk and safeguard national security.