The deadly chemical blast in the Chinese port of Tianjin was a preventable catastrophe in which more than 100 people lost their lives thanks in part to what looks like the political connections of the warehouse’s owners and although an upfront, transparent investigation and honest assessment of the environmental impact is likely the only way to safeguard the public and ensure it doesn’t happen again, no one believes the Chinese government has the will to conduct such an investigation.

But whatever you do, do not say any of the above if you live in China.

Similarly, China’s stock market collapse was an entirely preventable financial catastrophe caused by the unchecked accumulation of margin debt and the encouragement of speculation, and the bursting of the equity bubble which began in June has been nothing short of a debacle that’s led to international condemnation and accusations that, even in a centrally planned world, Beijing’s particular brand of intervention is so egregious as to stray outside the bounds of manipulated market decorum.

But if you live in China, don’t say that either.

Over the last two months there were signs that Beijing would soon resort to outright, sweeping censorship as it relates to both the stock market and the Tianjin blast. For instance, in July, phrases like "rescue the market" were reportedly banned and in the wake of the Tianjin disaster, hundreds of social media accounts were shut down for spreading "blast rumors."

Now, ahead of a military parade that Xi Jinping will allegedly use to show the world that the Chinese lion "has woken up" (albeit with the amusing caveat that the lion is "peaceful, pleasant and civilized"), the Politburo apparently has seen just about enough criticism for its handling of the stock market collapse and the Tianjin blasts and as WSJ reports, more than 200 people have now been "punished" for their alleged role in "mislead[ing] society and the public, generat[ing] and spread[ing] fearful sentiment, and even us[ing] the opportunity to maliciously concoct rumors to attack [the] Party and national leaders." Here’s more:

The sweep targeted people who the government said spread false Internet rumors regarding events such as the stock-market turmoil and deadly explosions earlier this month in the port city of Tianjin, the Ministry of Public Security said Sunday. The government is facing intense public scrutiny in China over its management of the slowing economy and turbulent markets, as well as public anger over the blasts at a hazardous-chemical warehouse in Tianjin. In its statement, the public-security ministry didn’t identify most of the 197 alleged offenders, giving only surnames for some of them. The statement quoted four people, identified only by their surnames, as expressing regret for spreading false information. It didn’t elaborate further on individual offenses and punishment, except to note that 165 online websites and accounts were shut down. Statements described by the ministry as false included rumors that a man jumped to his death in Beijing because of the stock market slump, claims that at least 1,300 people were killed in the Tianjin blasts, and inflammatory rumors related to China’s commemorations of the 70th anniversary of victory in World War II. Sunday’s statement came just weeks after the Cyberspace Administration of China said it shut down 18 websites permanently and suspended another 32 websites for a month for allegedly publishing unverified information or letting users spread groundless gossip related to the Aug. 12 explosions in Tianjin, which killed at least 150 people and injured more than 700.

China has also officially confirmed what multiple news outlets reported late last week. Namely that a journalist at Caixin and a prominent investment banker had been detained in connection with spreading "rumors" and "illegal trading."From WSJ again:

In the case of Mr. Wang, the Caijing reporter, Xinhua said an alleged fabrication was a July 20 report saying the China Securities Regulatory Commission was studying a withdrawal of government funds used to stabilize the domestic stock market amid a broad-based slump. Mr. Wang told investigators he wrote the report by combining market-related information with his own “subjective assessment.” More specifically, Wang says he “obtained the information [about the possible scaling back of CSF’s plunge protection buying] through the abnormal channel of gleaning, in private, information about the market. I shouldn’t have released a report with a major negative impact on the market at such a sensitive time. I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss. I regret . . . [it and am] willing to confess my crime.”

So essentially, Wang’s criminal behavior amounted to reading publicly available information in "private" (which we presume means "at his desk"), drawing conclusions, and writing a story, which is of course contrary to the tried and true method of journalism in China wherein Beijing sends journalists a dispatch telling them what to say and then journalists just regurgitate it.

As for Xu Gang, the CITIC executive, he has now apparently given a detailed account of his misdeeds, as has CSRC official Liu Shufan who apparently "told investigators that he took bribes from an executive of a listed company to help that firm pass regulatory scrutiny, engaged in insider trading and made use of forged documentation to help a lover purchase an apartment in Shanghai."

Meanwhile, China has also brought in Li Yifei, chairwoman of Man Group’s China arm. From Bloomberg:

Chinese authorities took Li Yifei, chairwoman of Man Group Plc’s China unit, into custody to assist with a police probe into market volatility, according to a person familiar with the matter. Li assisting with the investigation doesn’t mean she is facing charges or has done anything wrong. She has led Man Group in China since November 2011, according to her profile on LinkedIn. The person asked not to be identified because the probe isn’t public.

We suspect maybe this was the mistake:

In an interview with Bloomberg Television’s Stephen Engle in November, Li said investors and regulators in China were beginning to understand hedge funds. "The Chinese investors and regulators are beginning to understand that actually hedge fund is about hedging."

Yes, "actually hedge fund is about hedging," which, as Citadel learned earlier this month, would "actually" be fine as long as by "hedging" Li means "buying" or any other activity which leads equities higher. Always higher. Never, ever lower.

In any event, the Politburo has now abandoned all prestense of capital market liberalization and/or providing for an environment that's conducive to any semblance of freedom of speech. This is of course predictable. It's rather easy to claim that reforms are being implemented at a rapid clip both in terms of financial markets and in terms of society when everything is going well. But free markets can be painful when the invisible hand purges misallocated capital and freedom of the press can be equally painful when journalists unconstrained by censorship purge bullshit.

Of course journalists face plenty of censorship even in the US, which is supposed to be the bastion of press freedom (just ask Pedro da Costa) and capital markets are everywhere and always manipulated by central planners.

And that is perhaps the lesson Xi Jinping has yet to learn. That is, we all exist in a censorsed and manipulated world; the Politburo just hasn't figured out how to be subtle about it yet.



