Recently, Hong Kong economist Chen Zhiwu advocated for the “closure of the A-share market,” sparking heated discussions among investors in the context of the sluggish performance of the stock markets in China and Hong Kong. At the same time, the Chinese government is considering increasing the fees for high-frequency trading by at least ten times, imposing strict regulatory measures that pose a strong resistance to the hedge fund industry.
The University of Hong Kong’s Faculty of Business and Economics hosted the “2024 China and Global Economic Forum” at the end of July to discuss the future development direction of the Chinese economy and solutions to address potential challenges. During the forum, Chinese-American economist Chen Zhiwu engaged in dialogue with Wu Xiaoqiu, the Dean of the National Institute of Financial Research at Renmin University of China.
Chen Zhiwu put forward a controversial suggestion: closing the A-share market and even likening the development of the Chinese financial market to the era of Zhu Yuanzhang. His remarks have stirred up discussions and spread like wildfire among Chinese stock investors who are facing losses in the current downturn of the stock markets in China and Hong Kong. However, relevant articles have been removed from mainland Chinese websites, indicating that the authorities seem to deliberately block this news.
Economist Chen Zhiwu expressed his views on the A-share market. (Image: X @AsiaFinance)
Chen Zhiwu: No need to incur high costs to maintain the operation of the A-share market
Chen Zhiwu stated that for China, the current economic policies are increasingly reverting to the planned economy before the reform and opening-up. Since the government has reintroduced economic regulation and micro-control, there is no need to incur high 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, suggesting that these individuals should switch to other jobs to avoid creating an unbalanced capital market in society. Instead, he proposed focusing on developing banks, insurance-related finance, and wealth management funds. Chen Zhiwu bluntly stated that China’s financial market is “returning to the era of Zhu Yuanzhang.”
However, despite this challenging recommendation, Chen Zhiwu believes that the government will not adopt it, and the A-share market will not be closed. He mockingly explained that the A-share market serves three purposes: a tool for the elite to accumulate wealth, a tool for enterprises, especially state-owned enterprises, to raise funds, and a tool to increase government revenue.
China may increase high-frequency trading fees by 10 times
According to a report by Bloomberg on the 26th, earlier this year, China implemented strict restrictions on short selling. Currently, officials are considering increasing the fees for high-frequency trading by at least ten times, further reducing 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 raise the order fees that meet the high-frequency trading standards from 0.1 yuan to at least 1 yuan and increase the cancellation fees to 5 yuan. Accounts with a monthly turnover rate lower than four times the total holding volume will be exempt 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, holding about 5% of A shares. 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, thus the need to increase fees to maintain market fairness.