China’s National Security Bureau Threatens the Market ‘Bears’

An investor watches stock prices at a brokerage office in Beijing, China, on July 6, 2018. Jason Lee/Reuters

The CCP’s National Security Bureau (NSB) released an article on its official WeChat account on Nov. 2 criticizing the market “bears” who are forever the pessimists targeting China’s financial institutions to shake the international community’s confidence in investing in China, with the sole intention of causing financial turmoil. It warned that these “criminal activities” to endanger the state’s financial stability will be seriously dealt with according to law.

The bureau’s statement claimed that certain countries were using finance “as a geopolitical tool” to impose sanctions on China. They condemned the “bearish forecasters, short sellers, market skeptics, and market manipulators” for profiting amid the turmoil, accusing them of “trying to undermine the international community’s confidence in investing in China” and “provoking financial turmoil in China.” The article also emphasized that national security authorities should “give higher priority to preventing and resolving financial risks,” and crack down on and punish illegal and criminal activities in the financial sector that may endanger national security in accordance with the law.

At the end of October, mainland China experienced a situation where all four economic pillars—stocks, bonds, foreign exchange, and real estate—declined simultaneously. Official data showed that 10-year Treasury bond futures fell from 103.1 yuan (US$14.16) to 101.6 yuan (US$13.95). In the foreign exchange market, the yuan exchange rate against the U.S. dollar fell below 7.36. The Shanghai Stock Exchange Index also fell below 3,000 points at one point and approached 2,900 points. In the real estate market, real estate giants are heavily in debt, and so far, dozens of real estate developers are facing financial distress.

Former CCP Advisor Questions the Logic Behind NSB’s Statement

Amid the economic downturn in mainland China, this warning from the NSB caused an uproar in public opinion.

Lew Mon-hung, also known as the “Godfather of Futures,” and a former Hong Kong delegate of the Chinese People’s Political Consultative Conference (CPPCC), raised concerns about the logic behind the NSB’s actions. He noted that even during World War II, when fascist countries such as Germany and Japan established their rule in the countries they occupied, similar practices were not seen. He believed that using the NSB to “save the market by violent means” was on the wrong side of the issue. He pointed out that far-left rhetoric was the real reason private entrepreneurs withdrew investment, causing the market to spiral downward.

Mr. Lew pointed out that the economy itself has its natural cycles of ups and downs. Buying in anticipation of an upturn is called “going long,” while selling when you see a potential downtrend in the stock market is called “shorting.” All are legal and based on data.

He asked what stance the NSB would take if an economist or stock market commentator made an analysis based on negative data. For example, the youth unemployment rate of people aged 16 to 24 in mainland China was reported as 21.3 percent in July; foreign direct investment (FDI) in the second quarter of 2023 was only US$4.9 billion, down 87 percent from the same period last year; Evergrande and Country Garden “exploded”—and from these, they predict the stock market has a chance to go down, then “Is this market skepticism, short selling or market manipulation? Will it undermine national financial security and be punishable by law?” He believes that the NSB’s statement makes no logical sense and “does not conform to the basic tenets of economics.

Downward Market Trend Culminated from Extreme Left Ideology

Mr. Lew pointed out that in recent years, there have been extreme leftist ideas advocating the elimination of private property, the exit of private enterprises, the co-management and sharing of private enterprise employees, and even recently, through the “explosion” of China Evergrande, there are extreme leftists openly advocating the rapid freezing of the assets of private enterprises, but “these bizarre theories, are unimpeded.”

Mr. Lew also believes that the combined fallacy of the aforementioned misguided policies is why the market is moving downward and makes the market prone to negativity. “It shouldn’t be the case that when people make objective comments and analysis based on actual data, it’s seen as damaging the country’s financial security.

“We can never use the force of the government to order the market to be able to talk only about optimism, which is more in line with economic principles, and laws of science.” He believes that the priorities now are to correct the arbitrary allocation, arbitrary fees, and arbitrary fines on private enterprises, as well as the arbitrary filing of cases, arbitrary arrests, and arbitrary confiscations. All in all, “we must instead establish a market economy based on the rule of law.”

Preventing and Controlling Financial Risks Becomes CCP’s Priority

After the pandemic, China’s economic and financial risks have surfaced. On Oct. 24, CCP leader Xi Jinping inspected the Central Bank of China and the State Administration of Foreign Exchange. According to published information, this is his first visit to the Central Bank of China during his tenure as president. In the past, such inspections were usually led by the Premier or Vice Premier.

In addition, Pan Gongsheng, Governor of the Central Bank of China, delivered the “Report on the Financial Work Situation of the State Council” at the Standing Committee of the last session of the National People’s Congress on Oct. 21, analyzing the key issues in the financial work since the fourth quarter of 2022. Compared with the statement in last year’s report where “establish proper steps to further prevent and resolve financial risks” was mentioned, this year’s report proposes to “improve market-oriented, legal and normalized disposal mechanisms, and promote the disposition of key financial risks in a stable and orderly manner.”

Some analysts believe that this means that the official’s main goal has shifted to how to deal with the financial risks that have already occurred.

At the Central Financial Work Conference on Oct. 30 to Oct.31, Mr. Xi clearly stated that he must see to it that the “eight insistences” are put into practice, including “adhering to the centralized and unified leadership of the Party Central Committee in financial work” and “adhering to risk prevention and control as the eternal theme of financial work,” pointing out that “all financial activities must be brought under strict supervision in accordance with the law.”