Recently, Hong Kong economist Chen Zhiwu advocated for the “closure of the A-share market,” sparking heated discussions among stock investors in the current downturn of the Chinese and Hong Kong stock markets. At the same time, the Chinese government is considering increasing the cost of high-frequency trading by at least ten times, with strict regulatory measures posing strong resistance to the hedge fund industry.
The Faculty of Business and Economics at the University of Hong Kong held the “2024 China and Global Economic Forum” at the end of July to explore the future development direction of the Chinese economy and solutions to potential challenges. During the forum, American Chinese economist Chen Zhiwu engaged in a dialogue with Wu Xiaogu, the dean of the National Finance Research Institute at Renmin University of China.
Chen Zhiwu put forward a controversial proposal: to close the A-share market, even describing the development of the Chinese financial market as returning to the era of Zhu Yuanzhang. His remarks have sparked discussions and rumors within the Chinese stock market circle, given the current downturn of the Chinese and Hong Kong stock markets and frequent losses incurred by retail investors. However, relevant articles have already been taken down from mainland websites, indicating that the authorities seem to be deliberately blocking this information.
Economist Chen Zhiwu’s views on the A-share market. (Image: X @AsiaFinance)
Chen Zhiwu: No need to spend a large amount of costs to maintain the operation of the A-share market
Chen Zhiwu stated that for China, current economic policies are increasingly returning to the planned economy before the reform and opening up. Since the government has re-regulated and micro-controlled the economy, there is no need to spend a large amount of costs to maintain the operation of the A-share market. Chen Zhiwu has previously criticized Lin Yifu, a member of the National Committee of the Chinese People’s Political Consultative Conference and Deputy Director of the Economic Committee, for deception.
Furthermore, Chen Zhiwu pointed out that many leaders do not like financial practitioners earning high salaries. Instead, he suggested that these individuals switch to other jobs to prevent the formation of an anomalous capital market in society. He emphasized the development of banks, insurance-type finance, and wealth management funds, among others. Chen Zhiwu bluntly stated that China’s financial market is “returning to the era of Zhu Yuanzhang.”
However, Chen Zhiwu believes that the government will not adopt this challenging proposal, and the A-share market will not be closed. He mockingly explained that the A-share market serves three purposes:
– As a tool for dignitaries to accumulate wealth.
– As a tool for enterprises, especially state-owned enterprises, to raise funds.
– As a tool to increase government revenue.
China may increase high-frequency trading costs by 10 times
According to Bloomberg’s report on the 26th, China earlier this year implemented strict restrictions on short selling. Currently, the authorities are considering increasing the costs of high-frequency trading by at least ten times, further weakening the returns of some quantitative hedge funds and putting high-frequency trading under greater pressure.
The China Securities Regulatory Commission and the China Securities Exchange are planning to raise the order cost that meets high-frequency trading standards from 0.1 yuan to at least 1 yuan and increase the cost of canceled transactions to 5 yuan. If the monthly turnover rate of an account is less than four times its total holdings, it may be exempted to avoid affecting mutual funds. The final version may be subject to changes.
High-frequency trading is defined as trading behavior that exceeds 300 orders per second or over 20,000 requests per day.
Currently, program trading accounts for about 29% of the trading volume in the Chinese stock market, with A-share holdings accounting for about 5%. The China Securities Regulatory Commission emphasizes that while program trading can enhance market liquidity and provide traders with significant advantages in technology and speed, it may amplify market volatility. Therefore, increasing costs is necessary to maintain market fairness.
Related reports
– Is the 300 trillion yuan debt time bomb exploding? How long can China’s prosperity, bought by local governments with money, last?
– Reports of a “salary retreat” in China expanding to public fund employees, requiring repayment of excess high salaries to promote common prosperity.
– Is Hong Kong becoming a new USDT base? Co-founder Brock Pierce: China’s opening up to crypto is only a matter of time!
