China will close dozens of financial asset exchanges across the nation in an effort to combat financial risks and illegal fundraising activities imposed by the “pseudo-financial exchanges,” reported Chinese Communist Party (CCP) mouthpiece CCTV. Experts say the real reason for the shutdown is due to insolvency after years of bad practices.
On March 25, financial regulators in Hunan, Liaoning, Xi'an, and Chongqing announced the closure of local financial asset exchanges, labeling them as “pseudo-financial exchanges” that impose risks to the financial market.
Frank Tian Xie, a business professor at the University of South Carolina Aiken, told the Chinese-language edition of The Epoch Times that a lack of trading volume during the economic downturn was one of the main causes of the closure.
“Customers also lack confidence due to multiple scams associated with the bonds and financial products of these financial asset exchanges and the prevalence of insider trading in transactions,” said Mr. Xie.
He believes closure becomes the only option when market trading is wiped out due to insider trading, economic downturn, and the collapse of the stock and housing markets.
Independent economist Gong Shengli pointed out that the financial asset exchanges are financing platforms for local governments. He said, “What else can you do other than shut it down when it can no longer provide loans?”
A high-ranking official in the Chinese real estate sector who wished to be unnamed told The Epoch Times that illicit activities in local financial asset exchanges have been on the rise, posing challenges for central oversight. “The decision to close down all entities not directly established by the central government reflects an intricate power play between local and central authorities,” he said.
The U.S.-based economist Li Hengqing explained that over the years, these financial asset exchanges have effectively transformed into profitable instruments for affiliated entities. “They were authorized to issue bonds on behalf of corporations, but there’s no oversight,” he said.
Initiated by state-owned enterprises, these exchanges have developed into “popular platforms for trading nonstandard financial assets such as distressed financial assets, private placement bonds, targeted financing plans and accounts receivable” and served as “important funding channels for indebted conglomerates like China Evergrande Group, Zhongzhi Enterprise Group, and Tomorrow Holding,” reported Caixin.
Mr. Li said that the regime’s current crackdown on these exchanges showed that it cares little about the money ordinary citizens have lost; rather, it’s about preserving political power.
“It’s a matter of choosing the lesser of two evils. Since they can’t effectively regulate it, turning a blind eye could potentially pose a greater risk to the stability of the entire regime,” said Mr. Li
Since China established its first local financial asset exchanges in Tianjin and Beijing in 2010, the number of such institutions expanded rapidly, peaking at 80, according to Caixin’s report.
Subsequently, numerous enterprises and third-party wealth management firms were reported to have participated in illegal financing products that eventually collapsed.
