China stock market

Regulator wallops Chinese railcar owner with a US$870 million fine for manipulating stock prices

The fine, already 70 per cent of last year’s total penalties, is a sign of the regulator’s determination to instil discipline and punish malfeasance in the financial markets

PUBLISHED : Wednesday, 14 March, 2018, 3:56pm
UPDATED : Wednesday, 14 March, 2018, 11:33pm

China’s securities regulator has slapped a record 5.5 billion yuan (US$870.6 million) fine on a company for manipulating stocks, the biggest single penalty in the country’s financial industry, in a move that underscores the government’s determination to impose discipline in the freewheeling capital market.

Xiamen Beibadao Group, the country’s largest private owner of cargo railcars, was penalised for being complicit in manipulating the stock prices of Zhangjiagang Rural Commercial Bank, Jiangyin Rural Commercial Bank, and Guangzhou Hoshion Aluminium, all of which are listed in Shenzhen.

Shares of the three companies fell after the penalty was announced. Zhangjiagang’s shares fell by as much as 4.6 per cent, while Jiangyin’s stock posted an intraday loss of 2.3 per cent and Hoshion’s dropped by as much as 1.9 per cent.

The fine on Beibadao is more than 70 per cent of the total penalties imposed last year by the China Securities Regulatory Commission (CSRC). Still, it is not the single largest punishment ever. That distinction went to the 11 billion yuan penalty meted out last year by a court in Shandong province, which convicted hedge fund manager Xu Xiang of manipulating stock prices during China’s market rout two years earlier. Xu had 9.3 billion yuan of his illegal gains confiscated, and was imprisoned for 66 months.

Beibadao used borrowed money in more than 300 stock trading accounts to manipulate prices in the three companies, earning itself 945 million yuan in trading profits, according to the regulator’s statement.

Prices of the three stocks, which all more than doubled in February 2017 and reached record highs between March and April, have since plunged from their highs. Zhangjiagang has plunged 70 per cent from hits peak, while Jiangyin has fallen 69 per cent and Hoshion has plummeted 65 per cent from its high.

People involved in the case had refused to cooperate with investigators, and even resorted to physical altercations and attempts to destroy evidence, the regulator said. Beibadao officials could not be reached to comment.

“We are seeing tougher regulations across the entire financial sector this year, as curbing financial risks has become the top priority for the authorities,” said Wang Jianhui, an analyst for Capital Securities. “Financial deleveraging looks set to continue.”

The CSRC said it would step up its collaboration with other regulatory watchdog bodies, including the Chinese centra bank, the insurance and bank regulators, and Hong Kong’s Securities and Futures Commission. It will use big data analysis and cloud computing technology to track real-time trading accounts and activities that show suspicious patterns, the CSRC said.

In an attempt to strengthen enforcement efforts, China has merged the banking and insurance regulators to form the China Banking & Insurance Regulatory Commission, according to an announcement by the State Council earlier this week.

“This latest reform is in keeping with the authorities’ broader efforts to take a more comprehensive approach that prevents risks from shifting around the financial system, as market participants find ways around each new regulation,” said Fitch Ratings’ analysts Joyce Huang, Grace Wu and Dan Martin in a recent note. “The overall result should be that the authorities have more control over leverage and threats to financial stability over time.”

Chinese stock market regulator steps up war on speculators

The CSRC has also toughened its scrutiny of companies seeking to raise funds through initial public offerings (IPOs), with approvals falling by 12 percentage points to 79 per cent of all applications last year. That’s the lowest since April 2014, just before the CSRC reopened the IPO pipeline following an 18-month hiatus. In the three years from 2014, approval ratings had averaged 91 per cent every year.

“The regulator has continued to tighten its overall IPO approval process, even as it offers short cuts and fast tracks for big technology companies seeking to raise capital,” said Wang. “I don’t think the stricter approval process will change in the short term.”

Xiamen Beibadao Group is a company engaging in a wide range of businesses, including logistics, investment consultancy, market information investigation,and sales of electronics, according to public information on the corporate registry system.

With additional reporting by Xie Yu