China accuses trading firms of manipulating stocks, violating trading rules in market slide

BEIJING – Chinese authorities have accused securities firms of manipulating share prices and allowing improper trading during the country's market plunge, in a possible effort to deflect blame for investor losses totaling several trillion dollars.

The accusations follow drastic official efforts to stop price declines that caused China's market benchmark to plummet 30 percent over the past month, wiping out $3.8 trillion in investor wealth.

Prices have rebounded slightly following measures including a pledge by state-owned brokerages and government pension funds to buy stocks and a ban on sales by executives and major shareholders.

Investigators have found "evidence to suspect that individual trading companies are illegally manipulating securities and futures exchanges," the police ministry said in a statement late Sunday. It said a criminal investigation was underway but gave no details of which firms were targeted.

The stock market boom began last year after the state press said shares were cheap, which led investors to believe Beijing would intervene to prop up prices if needed. The collapse came after changes in banking regulations made investors suspect Beijing might withdraw its support. Regulators also tightened controls on lending to finance trading.

Official media have blamed the market slide on short-selling, rumors and misconduct, possibly by foreign investors.

The ruling Communist Party wants to encourage more public stock investment and wants the markets to raise money for state companies to pay off debts and become more competitive.

The price collapse could frustrate those plans by making small investors who have suffered heavy losses reluctant to buy shares in the future.

Separately, the securities regulator accused unspecified companies late Sunday of violating market rules by allowing stock trading through accounts with fictitious names and other improper behavior. It ordered brokers to stop allowing access to outside companies that provide credit for trading, which might amplify market swings.

Securities companies allowed anonymous trading accounts "to the detriment of the legitimate rights and interests of investors, seriously disrupting the stock market order," said a China Securities Regulatory Commission statement.

"As the market has stabilized, these illegal phenomena appear to have momentum to make a comeback that might again jeopardize the smooth operation of the stock market."