Could GameStop-style short sales appear in China's stock market?
Last week's hype in the US may have inspired China's crypto community to bet more on Dogecoin (DOGE) and Bitcoin (BTC), but even the most daring traders are unlikely to seek out this type of short-selling speculation in Chinese stocks stir up.
“The Chinese financial regulators closely monitor who is trading what in the Chinese stock markets. Retail investors involved in large malicious short sales could be jailed, ”said Jason Wu, CEO of crypto-lending company DeFiner.
"The market capitalization of the crypto market in China is extremely small compared to the Chinese stock market, so all authorities are keeping an eye on the disruptors of the stock market," added Wu.
The China Security Regulatory Commission (CSRC), the country's foremost financial watchdog, has been closely monitoring short selling since a massive crash in 2015.
On the Shanghai Stock Exchange, one-third of the value of A-shares, which are shares of public companies based in mainland China, was wiped out within a month, and more than half of the listed companies requested that others stop trading Prevent losses.
While the cause of the historic decline remains unclear, some of the best-known economists blamed short sellers for the crisis. Short sellers bet that a stock they are selling will fall in price.
"It is margin trading and short selling that killed the bull market before the (2015) market crash," said Shuwei Liu, a researcher at the Financial Research Institute of the Central University of Finance and Economics, in a July 7, 2015-ed statement titled "Chinese Stock short shellers should be severely punished. "
“A shares are still an emerging market. The CSRC is unable to bring the lever tools under control, ”Liu wrote at the time. "Under these conditions, we're giving the illegal A-share shorts a weapon by opening short sales." The CSRC approved the margin trading and short selling system in March 2010.
The central bank accused foreign financial institutions of market manipulation by short selling large quantities of Chinese stocks, implying that US investment bank Morgan Stanley was causing some of the problems in China's stock market.
"While private Chinese investors could technically do small-scale short selling, there is no way financial regulators would allow the Chinese stock market something like the GameStop Short Squeeze to happen," said DeFiner's Wu.
It would be a logistical challenge for Chinese private investors to organize a GameStop campaign. A major player in GameStop history is the social media platform Reddit, where anonymous users can meet and discuss shorting strategies for undervalued stocks.
The majority of 177 million Chinese private investors, who hold 28.6% of the total Chinese stock market value, communicate in groups on domestic social media platforms such as WeChat, QQ or Weibo, where moderators can censor “illegal content” on the platforms.
"Unlike many tech-savvy crypto traders, many private investors have no VPN or any other access to encrypted messaging apps such as Telegram or Signal," said Wu. "I can't imagine a large group of people talking about short-selling stocks in a public forum like Zhihu," the Chinese woman replied to Reddit.