One of China’s top stock market regulators has been arrested.
The head of the division in charge of IPOs on the Shanghai and Shenzen stock markets, Li Zhiling, is accused of violating rules and letting her husband trade stocks, according to a statement by the China Securities Regulatory Commission (CSRC).
Li has been in charge of approving IPOs on the Chinese stock market, as well as requests by companies to sell additional shares, since 2014.
“She’s suspected of breaking the law by taking advantage of her position,” said a statement by the CSRC posted on Weibo. “Once we discover such violations, we will immediately take action to punish them. We do not take this lightly.”
From the sounds of that statement, you could consider this arrest a part of President Xi Jinping’s far-reaching anti-corruption campaign — the now-two-year long purge that has taken down the highest level officials since China’s Communist Party was founded by Mao Zedong.
But that would only be some part.
Li’s arrest comes on the heels of what some are calling ‘China’s Black Friday.’ Last week, the Shanghai Composite Index plunged over 13%, officially putting the market into correction territory.
This after China’s traders watched their market return around 140% over the last year.
It was a pile-in. Farmers in remote villages got trading accounts, the entire country levered up, and money that had once poured into China’s real estate market focused on the quicker returns of equities instead.
Now the government is worried that a downturn could lead to social unrest. Regulators have put their foot down and forced traders to top using as much leverage — one of the main drivers of the rally.
That will likely dampen the market’s performance. But to the government, that’s better than the alternative: social unrest.
The last thing the Communist Party wants is protesting in the streets over lost retirement savings (for one thing). Journalists have been asked to temper their tone when writing stories about it.
“It’s a do-or-die moment for all investors,” Dong Jun, a Shanghai-based hedge fund manager, told the South China Morning Post. “If retail investors become skittish now, panic selling will continue next week.”
In the meantime, it’s a management shake up in Shanghai.