Corruption Hunter Now Focused on Stock Traders

Reuters: Foreigners drawn in as fear and loathing grip China's finance industry

"Everyone is absolutely terrified of China," said a director at an international brokerage in Hong Kong, echoing the sentiment of many in the industry contacted by Reuters. Most did not want to be identified due to the sensitivity of the issue.

The crackdown on the securities industry - from hedge funds and institutional fund managers to brokers and banks - began after the mid-year equity market crash wiped around 40 percent off mainland share prices, which Beijing blamed partly on "malicious" short-selling and insider trading.

"You can't 'comply' because there is no rule of law," he said. "The best thing you can do is establish processes for who is likely to be taken away, and how to make sure they aren't disappeared forever."

How much is blatant intimidation of innocent short sellers and how much is legitimate rule/law violations? I tend to think there's probably quite a bit of the latter. One can complain about the way China uses the Duck, Duck, Goose strategy of random, short-term and excessive enforcement of the law, but if laws were broken, that's how they do it.

Perception is important though. If people believe innocent short-sellers are being carted off, or even longs who unloaded a large position, it will put a chill over the market for years. Everyone involved will remember that at some point down the road, the government might decide to criminalize your behavior.

Or you can do like the Chinese. Hunker down for the storm and wait for it to pass:

"We want to remain low-key right now, don't want to bring trouble on ourselves," said the source. "Everything will start up again, though, as soon as they leave."

Soon everything will be back to normal. Just make sure you stash some winnings overseas, get visas for yourself and family, and when the next bear market comes, leave the country.

ZeroHedge has more: China "Terrifies" Investors With Crackdown: "If You Don't Do What They Ask, There Will Be Blood"