HONG KONG (Reuters Breakingviews) - Hong Kong’s financiers should study the lesson Man Group learned during the Chinese stock crash of 2015. Chinese authorities detained bankers and brokers, including the British hedge fund’s China head, as state media blamed foreign forces for sabotaging markets. Beijing’s proposed new security law will extend this attitude to Hong Kong. Traders and investors may have as much cause to worry as protesters.
Legislation proposed at China’s annual parliamentary meetings, which conclude today, includes new language for Hong Kong’s mini-constitution, the Basic Law. It targets acts of secession, subversion of state power, terrorism and “foreign interference”, which Chinese officials blame for recurrent unrest in the Asian hub.
Beijing assures that implementation will be narrow. But Chinese Communist Party’s sweeping definition of national security at home goes beyond politics; it includes threats to economic and market performance. This broad brush was applied in 2015 as Shanghai and Shenzhen exchanges together lost over $4 trillion in market value. Then, as now, Chinese media explicitly blamed foreigners for sabotaging national security, and Man Group’s Li Yifei got caught up in the mess.
Traders described a purge atmosphere taking hold as employees informed on bosses and rivals, accusing them of “malicious short selling” usually via derivatives. Chinese police, who had little understanding of traders’ risk strategies, tended to view any hedged position as sabotage. Li disappeared for six days, and her husband told Bloomberg she was assisting authorities - although she later said she was meditating. She was one of many executives “invited for tea” as the euphemism goes. Others were jailed; some committed suicide.
Hong Kong was spared, although China’s securities watchdog did ask for information on investors taking short positions against mainland companies listed on the local international stock exchange. After that the city did get harsher with financial critics, however, fining Moody’s for a critical report in 2016 and banning short-seller Andrew Left. Now Beijing plans to insert its security organs directly into Hong Kong. First they will come for the protesters and their supporters. If the city’s economy and markets are wrecked in the process, they’ll have an excuse to go after the investors.
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