China Sentences Two for Data Leaks

A Chinese court sentenced two government officials to prison on Monday for leaking economic data prior to its release date, allowing traders and themselves to unfairly benefit from movements in the world’s third-largest stock market. From The New York Times:

At a news conference Monday in Beijing, prosecutors said the two men had profited by sharing confidential data, from the country’s economic growth rate to retail sales and inflation numbers.

The government said the leaks had allowed people in the securities industry to engage in a form of insider trading in Chinese stocks because they had had an unfair advantage over others in the market. But Chinese economic data could also have an effect on prices of stocks in Hong Kong and overseas markets.

Li Zhongcheng, a deputy director in the state prosecutor’s office, said at the news conference in Beijing that the leaks “disrupt fair market competition, affect the government’s credibility and cause huge losses to the interest of the country, society and the people.”

China has struggled to keep a lid on key data and protect the credibility of its stock market for years, and this summer it began to accelerate the reporting of statistics in an effort to reduce leaks. Today’s punishments represent the toughest action yet and, hopefully, a clear deterrent against future disclosures of secret information. From Bloomberg:

“It’s like killing the chicken to scare the monkeys,” he said, using a Chinese idiom. “It’s also aimed at those who dig for information and manipulate the stock market.”

The consumer-price index figure was accurately circulated in the market or in the press before the official release for at least five of the six months through April this year.

Such early disclosure has helped move markets in the world’s second-biggest economy.

After rumors circulated on the Internet in February that inflation for the previous month would be a lower-than-forecast 4.9 percent, China’s benchmark Shanghai Composite Index rose 2.5 percent, the most in two months, on speculation China wouldn’t need to raise interest rates further to cool rising prices. After the statistics bureau’s official release a day later, which matched the number, the market ended almost unchanged.

See also previous CDT coverage of Chinese state secrets, including the compromised confidentiality of its nuclear power industry and the detainment of a journalist for exposing the cover-up of a crime by local officials.

October 24, 2011 8:52 AM
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Categories: Economy, Law