Opinion | China needs to be careful in efforts to kill market bears or it may frighten away the bulls

China’s anti-espionage ministry broke its silence to declare war against investors who “short” China’s financial markets via speech or acts.

In an article published by China’s Ministry of State Security on its newly created social media account, the spy agency said financial security was part of overall national security and that it would go after those who “short” China with intentions to cause havoc in the financial market.

The warning from a usually behind-the-curtain authority, which was seen as an interpretation of a key financial work conference held by the ruling Communist Party, immediately got the attention of observers and stirred debate among investors. Some of the concerns are unwarranted because the state security apparatus is not likely to probe every sale or “bearish” market view. The statement was more a gesture to pledge allegiance to the top leadership than a working plan to hunt down unwelcome bears.

As the Chinese government is predicting growing risks stemming from the financial field, it’s a given that China’s security system, including the public security bureau at home and the national security authority handling external threats, will play a bigger role in assessing and managing such risks. Therefore, it’s not surprising to hear the state security ministry say it has a role to play in China’s financial security.

At the same time, China has to be aware of too easily creating imaginary targets, or enemies, in financial markets. The state security ministry’s warning against those who “hold shorting views”, “speak shorting voices” and “conduct shorting activities” when it comes to China’s financial markets, to say the least, sows confusion among investors. It is common sense that buying and selling are two sides of one coin in any market, and there will be no point to go “long” if going “short” is banned.

Also, long and short positions are constantly changing. A decade ago, one of the top jobs for China’s financial regulators was to keep “hot money” out of the country. Many investors were trying to get money into China to buy onshore stocks and bonds to take advantage of China’s economic rise and an appreciating yuan, and Beijing spent huge amounts of time and effort to keep these “speculators” at bay. In fact, many of China’s policies, including limited opening of its onshore markets to screened “qualified foreign investors”, are in place to curb long positions instead of short positions.