Source: South China Morning Post (http://www.scmp.com)

In line with its determination to instil discipline and punish malfeasance in its financial markets, China Securities Regulatory Commission (CSRC) has slapped a record 5.5 billion Yuan (US$870.6 million) fine on a company for manipulating stock prices.
This is the biggest single penalty in the country’s financial industry, in a move that underscores the government’s determination to impose discipline in the freewheeling capital market.
Xiamen Beibadao Group, the country’s largest private owner of cargo railcars, was penalised for being complicit in manipulating the stock prices of Zhangjiagang Rural Commercial Bank, Jiangyin Rural Commercial Bank, and Guangzhou Hoshion Aluminium, all of which are listed in Shenzhen.
Shares of the three companies, according to South China Morning Post on Wednesday, fell after the penalty was announced. Zhangjiagang’s shares fell by as much as 4.6%, while Jiangyin’s stock posted an intraday loss of 2.3% and Hoshion’s dropped by as much as 1.9%.
The fine on Beibadao is more than 70% of the total penalties imposed last year by the CSRC, even if not the single largest punishment ever, a record still held by the 11 billion yuan fine last year imposed by a court in Shandong province on hedge fund manager Xu Xiang. He was found guilty of manipulating stock prices during China’s market rout two years earlier.
Xu had 9.3 billion yuan of his illegal gains confiscated, and was imprisoned for 66 months.
Xiamen Beibadao Group, a company engaging in a wide range of businesses, including logistics, investment consultancy, market information investigation,and sales of electronics, used borrowed money in over 300 stock trading accounts to manipulate prices in the three companies, earning itself 945 million yuan in trading profits, according to the regulator’s statement.
Prices of the three stocks, which all more than doubled in February 2017 and reached record highs between March and April, have since plunged from their peaks. Zhangjiagang has plunged 70% from its peak, while Jiangyin has fallen 69% and Hoshion has plummeted 65% from its high.
People involved in the case had refused to cooperate with investigators, and even resorted to physical altercations and attempts to destroy evidence, the regulator said. Beibadao officials could not be reached to comment.
“We are seeing tougher regulations across the entire financial sector this year, as curbing financial risks has become the top priority for the authorities,” said Wang Jianhui, an analyst for Capital Securities. “Financial deleveraging looks set to continue.”
The CSRC said it would step up its collaboration with other regulatory watchdog bodies, including the Chinese centra bank, the insurance and bank regulators, and Hong Kong’s Securities and Futures Commission. It will use big data analysis and cloud computing technology to track real-time trading accounts and activities that show suspicious patterns, the CSRC said.
In an attempt to strengthen enforcement efforts, China’s State Council last week announced the merger of its banking and insurance regulators to form the China Banking & Insurance Regulatory Commission.
“This latest reform is in keeping with the authorities’ broader efforts to take a more comprehensive approach that prevents risks from shifting around the financial system, as market participants find ways around each new regulation,” said Fitch Ratings’ analysts Joyce Huang, Grace Wu and Dan Martin in a recent note. “The overall result should be that the authorities have more control over leverage and threats to financial stability over time.”
The CSRC has also toughened its scrutiny of companies seeking to raise funds through initial public offerings (IPOs), with approvals falling by 12 percentage points to 79% of all applications last year. That’s the lowest since April 2014, just before the CSRC reopened the IPO pipeline following an 18-month hiatus. In the three years from 2014, approval ratings had averaged 91 per cent every year.
“The regulator has continued to tighten its overall IPO approval process, even as it offers short cuts and fast tracks for big technology companies seeking to raise capital,” said Wang. “I don’t think the stricter approval process will change in the short term.”