China’s stock market was fairly quiet with thin trading after the annual “Two Sessions” political gatherings in March, but it suddenly sprang to life on April 1, when top policymakers announced the Xiongan New Area plan.
Speculators immediately seized the development plan as a trading theme.
The market turnover of Shanghai and Shenzhen spiked to over 600 billion yuan, from around 400 billion yuan previously. Several Xiongan-related stocks hit the daily 10 percent up-limit for several consecutive days.
However, the market frenzy lasted less than two weeks, as rumors began circulating that authorities would clamp down on speculation in Xiongan-relevant stocks.
Those stocks then suffered a heavy sell-off.
Among the active speculators, the so-called Wenzhou Gang is a name that crops up frequently.
These Wenzhou businessmen made their fortune from manufacturing. As profitability in running factories thinned, the group shifted their focus to speculative activities of all kinds, including commodities and properties.
As authorities have tightened property policies, the “Wenzhou Gang” has been forced to retreat from real-estate speculation, which had been a major focus earlier.
Some of them then moved into the stock market. Xiongan trading theme was regarded as a great opportunity until the recent sell-off.
Now, such speculators must look for new things.
Mainland authorities have recently taken a tough stance against excessive speculation. That said, speculation has always been part of the stock market.
While controls may be needed, the government should bear in the mind that too many restrictions and regulations could stifle market vitality.
This article appeared in the Hong Kong Economic Journal on April 21
Translation by Julie Zhu
[Chinese version 中文版]
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