Recently, Hong Kong economist Chen Zhiwu advocated for the “closing of the A-share market”, sparking discussions among investors in the context of the sluggish performance of the stock markets in both China and Hong Kong. At the same time, the Chinese government is considering raising the fees for high-frequency trading by at least ten times, which confirms the excessive interference of the Chinese stock market authorities.
The University of Hong Kong Faculty of Business and Economics hosted the “China and Global Economy Forum 2024” 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 Xiaoqiu, the director 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 likening the development of the Chinese financial market to the era of Zhu Yuanzhang. These remarks have stirred up discussions and circulated widely within the Chinese investor community amidst the current slump in the stock markets in China and Hong Kong. However, relevant articles have been removed from mainland Chinese websites, indicating an apparent deliberate official censorship of this news.
Economist Chen Zhiwu’s perspective on the A-share market. (Image: X @AsiaFinance)
Chen Zhiwu: No need to spend a large amount of money to maintain the operation of the A-share market
Chen Zhiwu stated that for China, current economic policies are increasingly reverting to the planned economy before the reform and opening up. Since the government has re-regulated and microscopically controlled the economy, there is no need to spend a large amount of money 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.
Chen Zhiwu further pointed out that many leaders do not like financial practitioners earning high salaries and suggested that these individuals should switch to other occupations to avoid the formation of an unbalanced capital market in society, focusing instead on the development of banks, insurance-type finance, and wealth management funds. Chen Zhiwu bluntly stated that China’s financial market is “returning to the era of Zhu Yuanzhang.”
However, regarding this challenging proposal, Chen Zhiwu believes that the government will not adopt it, and the A-share market will not be closed. He sarcastically explained that the A-share market serves three purposes:
– As a tool for the privileged to accumulate wealth;
– As a tool for enterprises, especially state-owned enterprises, to raise funds;
– As a tool to increase government revenue.
China may raise high-frequency trading fees by 10 times
According to Bloomberg’s report on the 26th, China earlier this year introduced strict measures to limit short selling. Currently, officials are considering raising the fees for high-frequency trading by at least ten times, further weakening the returns of some quantitative hedge funds and putting more pressure on high-frequency trading.
The China Securities Regulatory Commission and the China Securities Exchange are planning to increase the fees for orders that meet high-frequency trading standards from 0.1 yuan to at least 1 yuan, and to raise the fees for canceled trades to 5 yuan. Accounts with a monthly turnover rate lower than four times the total holding amount may be exempt to avoid impacting mutual funds. The final version of the plan may be subject to changes.
High-frequency trading is defined as trading activities that exceed 300 orders per second or more than 20,000 requests per day.
Currently, algorithmic trading accounts for about 29% of the trading volume in the Chinese stock market, holding about 5% of A shares. The China Securities Regulatory Commission emphasized that while algorithmic trading can increase market liquidity and provide traders with significant advantages in terms of technology and speed, it may amplify market volatility, hence the need to increase fees to maintain market fairness.
Economic analyst Chen Zhiwu’s perspective on the A-share market. (Image: X @AsiaFinance)