The Butcher Broker is back in business in China. Will he clean up the financial markets or just watch them sink?
Wu Qing earned his colorful nickname while serving as the head of the China Securities Regulatory Commission (CSRC) in the 2000s. Then he closed a quarter of the country’s securities dealers.
On February 8, Xi Jinping returned 58-year-old Wu to the post of chief market policeman. He wasted no time in reining in the algorithmic short sellers he believed were exacerbating the precipitous decline of Chinese stocks.
Days before Wu’s reappointment, Beijing announced a “zero tolerance” policy for “malicious short selling.” Wu then expanded his focus to include quantitative traders, known for buying volatile small-cap stocks and hedging their bets by shorting broader market indexes.
His CSRC froze the accounts of one of the leading quants, Ningbo Lingjun, for three days, triggering a “quantum earthquake” that caused heavy losses. “The punishment will be increasingly severe,” the regulator’s enforcement chief said at a subsequent press conference.
Wu, however, is not an anti-market fanatic. Ph.D. An economist, he headed the Shanghai Stock Exchange and oversaw the commercial capital finance industry in between his stints at the CSRC, earning praise from at least some of the world’s capitalists.
“Wu Qing’s appointment is great news,” said Jason Xu, founder of US-based Rayliant Global Advisors. “In Shanghai, he was instrumental in my firm’s license application process.”
A greater focus on quantum funds should only make Chinese markets safer and bolster investor confidence; Xu adds: “High-frequency traders advertise themselves as scalping profits from naive retail traders.”
In Wu Qing’s first two weeks as CSRC, Chinese shares listed on the Hong Kong Stock Exchange rose 6%, momentarily reversing a seven-month period of near free fall. The return of the Butcher was almost the only factor; China’s “national team” of sovereign wealth funds said it was buying up shares, and the People’s Bank of China cut mortgage rates.
Analysts question how much of a difference any reshuffle will make given the scale of the problems that have sent Chinese stocks down 60% over the past three years. Wu’s rise is “simply a case of finding a scapegoat for the market decline,” says Logan Wright, who heads China market research at consultancy Rhodium Group.
The article “China: The Return of the Butcher Broker” first appeared in Global Finance Magazine.