A GameStop-Like Mania Is Unlikely in China’s Stock Market

Could GameStop-style short-selling speculation show up in China’s stock market?

Last week’s market frenzy in the U.S. may have inspired China’s crypto community to make more bets on dogecoin (DOGE) and bitcoin (BTC), but even the boldest traders are unlikely to try stirring up that kind of short-selling speculation in Chinese stocks.

“The Chinese financial regulators are closely monitoring who are trading what in the Chinese stock market. Retail investors involved in large-scale malicious shorting could be put in jail,” said Jason Wu, CEO of crypto-lending firm DeFiner.

“The market cap of the crypto market in China is extremely small compared to the Chinese stock market, so all the authorities’ eyes are on the disruptors of the stock market,” Wu added.

The China Security Regulatory Commission (CSRC), the top financial watchdog in the country, has been closely monitoring short-selling activities since a massive crash in 2015.

On the Shanghai exchange, one-third of the value of A shares, which are stock shares of mainland China-based public companies, was wiped out within a month back then, and more than half of the listed companies filed for a trading halt to prevent further losses.

While the cause of the historic drop remains unclear, some of the most prominent economists blamed short-sellers for the crisis. Short sellers bet a stock they sell will drop in price.

“It is the margin trading and short-selling that killed the bull market before the [2015] market crash,” Shuwei Liu, researcher at the Finance Research Institute of Central University of Finance and Economics, said in a July 7, 2015, op-ed titled, “Chinese Stock Short Shellers Should Be Heavily Punished.”

“The A shares are still an emerging market. The CSRC does not have the ability to get the leverage tools under control,” Liu wrote then. “Under these conditions, we are giving the illegal A shares short-sellers a weapon by opening up short-selling.”…

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