Recently, Hong Kong economist Chen Zhiwu advocated for the “closure of the A-share market”, sparking 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 tenfold, which confirms the situation of excessive official intervention in the Chinese stock market.
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 potential challenges. During the forum, American Chinese economist Chen Zhiwu engaged in a dialogue with Wu Xiaochu, director of the National Institute of Finance at Renmin University of China.
Chen Zhiwu made a controversial suggestion: to close the A-share market, even likening the development of the Chinese financial market to the era of Zhu Yuanzhang. This statement has stirred up discussions and rumors within the Chinese stock investor community due to the current downturn in the Chinese and Hong Kong stock markets and frequent losses suffered by retail investors. However, relevant articles have been removed from mainland Chinese websites, indicating that the authorities seem to be deliberately blocking this news.
Economist Chen Zhiwu’s views 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, the 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 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 deceiving.
Chen Zhiwu further pointed out that many leaders do not like financial practitioners earning high salaries and would rather have these people switch to other jobs to avoid creating an unbalanced capital market. He emphasized the development of banking, 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, regarding this challenging suggestion, Chen Zhiwu believes that the government will not adopt it, and the A-share market will not be closed. Somewhat sarcastically, he 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 for the government to increase tax revenue.
China may increase high-frequency trading fees by 10 times
According to a report by Bloomberg on the 26th, China recently implemented strict measures to limit short selling and is currently considering raising the fees for high-frequency trading by at least tenfold, 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 raise the fees for orders that meet high-frequency trading standards from 0.1 yuan to at least 1 yuan, and to increase the fees for canceled trades to 5 yuan. Accounts with a monthly turnover rate lower than four times the total holding amount will be exempt to avoid affecting mutual funds. The final version may undergo some 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 approximately 29% of the trading volume in the Chinese stock market and holds 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 terms of technology and speed, it may amplify market volatility, hence the need to increase fees to maintain market fairness.