China signals intent to hunt ‘financial crocodiles’ to extinction
China has ordered its prosecutors to get tough on the “financial crocodiles” that threaten PRC’s economic stability in a sign that Beijing will flex all of its regulatory and judicial muscle in the long-standing drive to stamp out corruption.
The Supreme People’s Procuratorate has released a bluntly phrased notice that it expects its prosecutors to clamp down on “those financial crocodiles that make waves” and also on “moles”. “Crocodiles” is a term that has been used to refer to both individuals and conglomerates associated with aggressive deal-making, while “moles” are, in Beijing-speak, individuals engaging in insider-dealing and other forms of corruption.
President Xi Jinping himself (pictured left) used the the zoological language in a speech in April, which foreshadowed a request in June by banking regulators to “examine their exposure” to aggressive conglomerates thought to include Dalian Wanda, Fosun, Anbang and HNA Group. The move caused stock in these companies and their subsidiaries to plummet on the Shanghai and Hong Kong exchanges.
In this latest salvo, prosecutors are asked to renew their efforts on fraud investigation in the areas of “securities and futures trading and issuance, and to clamp down on irregular information disclosures, misinformation and insider leaks”, according to a summary of the notice released by the agency.
Ponzi schemes to come under the spotlight
As well as moving to “curtail the spread of corruption” in China’s financial services industry, the directive also states that the state will “strike hard” against Ponzi schemes. These “get rich quick” frauds, relatively rare in the west, thrive in China thanks to a combination of financial naivety allied with a desire for unrealistically high returns, a leading Chinese academic said last month.
Zhao Xijun, deputy dean of the finance school at Beijing’s Renmin University of China, said: “People are eager to achieve high returns but they do not have adequate knowledge of financial risks or how to screen [products] for them,” the South China Morning Post reported in July.
“China’s financial markets were opened in the 1990s, and the pace at which they have developed has brought many risks,” Zhao explained, adding, “Chinese people have invested heavily in financial products, such as wealth management funds, but only for a very short period of time. They have very little experience.”
Crocodiles and moles are the latest species to join the menagerie of metaphors that are associated with China’s financial industry; earlier this year President Xi urged vigilance in combating the “grey rhino” financial risks that threaten both economic growth and social stability.