China’s market regulator starts investigation into stock price manipulation amid fund complaints

Manipulating the market seriously infringes upon the legitimate interests of investors and disrupts market order, the CSRC says in statement
Ye Fei, a private equity fund manager, took to Weibo earlier this month alleging ‘valuation management’ scheme in stock prices

Regulation

Martin Choi

Published: 4:03pm, 17 May 2021

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China’s stock market regulator has started an investigation into alleged price manipulation, vowing to crack down on illegal activities to protect the nation’s 180 million mainly retail investors.

The China Securities Regulatory Commission (CSRC) said on Sunday that it was probing trades in Jiangsu Lettall Electronics and ZOY Home Furnishing by related parties, in response to local media reports.

“Manipulating the market seriously infringes upon the legitimate interests of investors and disrupts market order,” the CSRC said in a statement on its website. “This form of ‘cancer’ in the market must be eradicated.”

The warning has come at a time when the CSI 300 Index of biggest companies in Shanghai and Shenzhen has lost 11 per cent in value from its mid-February peak. China’s 20 trillion yuan (US$3.07 trillion) mutual fund industry is among the casualties of the current doldrums.

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Since 2020, the CSRC has initiated 65 probes into stock price manipulations, according to the statement, adding that it would adopt a “zero tolerance” policy toward market manipulation. Wang Yue, the 37-year-old billionaire founder of Shanghai Kingnet Network, was jailed for five-and-a-half years for manipulating stock prices late last year.

Jiangsu Lettall Electronics, which manufactures precision metal structural parts and electronic components, fell as much as 10 per cent to 18.92 yuan in intraday trading on Monday. ZOY, which sells furniture including motion sofas, plunged as much as 8.1 per cent to 17.01 yuan. Both companies have plunged more than 40 per cent since their recent highs in March.

The regulator would improve the quality of public listed companies and encourage them to reward investors through cash dividends and stock buyback programmes, Yan Qingmin, vice-chairman of the CSRC, said at an event on Saturday to mark the National Investor Protection Day. It would also continue to improve the market environment to enhance investor trust and confidence, he added.

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“China’s A-share market has over 180 million investors,” according to his speech at the event. “Protecting their legitimate rights and interests is an inherent requirement for the capital markets to fulfil its original mission.”

Controversies about stock price manipulation have been trending on mainland social media in recent weeks. Ye Fei, a private equity fund manager in China, took to Weibo – a Twitter-like service – earlier this month alleging “valuation management” in stock prices.

He claimed in a May 9 post that ZOY and other companies could drive prices up by up to 30 per cent through schemes involving the companies, public equity funds and other entities. ZOY rejected the allegations in a filing to the Shanghai Stock Exchange on Friday.

This article appeared in the South China Morning Post print edition as: Regulator adopts a ‘zero tolerance’ approach in price manipulation probe