China cracks down on 'rogue' traders after Black Monday fears come back to spook investors
China has embarked on a criminal pursuit of rogue banks and brokerages in a crackdown designed to stop money fleeing the country as it struggles to stave off a stock market collapse.
Authorities are investigating five of the country's biggest brokers and have launched a probe against "underground banks" for financial malpractice, which they claim has helped trigger record levels of capital flight.
Beijing has been battling to protect the value of its currency, driving down its reserves, and halt panic selling on the country's stock exchange.
Pawn shops in the gambling hub of Macau have been raided, and 17 people arrested on charges of bank card fraud this week. Xinhua, China's official news agency, called for a “purification” of the capital markets and blamed banks for illicit moves that have intensified the country's market crisis.
Chinese law limits individual money transfers of $50,000 every year, but underground banks have thrived as a channel to send money out of the country. These activities now pose a threat to China's "financial safety" and foreign exchange regime, said Meng Qingfeng of the Ministry of Public Safety.
The campaign to find scapegoats comes after skittish investors remain unconvinced by China's central bank's attempts to boost the economy by cutting interest rates.
European stock markets closed back in the red on Wednesday following a rollercoaster morning of Asian trading. Europe's bourses fell by as much as 2pc, wiping out much of the gains of Tuesday's relief rally, which saw investors pour back into equities following a violent "Black Monday".
The FTSE 100 closed the day down 1.3pc, wiping off £30bn during a day of volatile swings. France's CAC40 and Germany's Dax both fell 1pc as investors took flight from risky assets. The session followed a turbulent day of trading in the US, where markets lost 4pc of their value in a matter of hours in late trading.
But hopes of a delayed interest rate hike from the Federal Reserve saw US stocks rebound strongly, enjoying their best trading day since 2011.
The Dow Jones gained 350 points at the opening bell, while the S&P500 soared to close nearly 4pc up as investors took heart in accommodative noises from the Fed.
"The picture still looks unclear, with bulls and bears finely balanced, but so long as markets can hold above the lows of the week then a recovery may still be in prospect," said Chris Beauchamp at IG.
Risk appetite returned after New York Federal Reserve boss William Dudley said a September hike was no longer on the cards for the world's biggest central bank.
"The decision to hike rates for the first time in nine years next month "seems less compelling to me than it was a few weeks ago," said Mr Dudley who has previously supported a September lift-off.
He added that gyrations in the stock market would have to be "persistent" to "impinge" on policymakers' outlook for global growth and hinted the Fed would still fire the starting gun on a rate hike by the end of 2015.
Stocks have undergone dramatic gyrations this week as traders have failed to take solace in Beijing's bid to loosen monetary conditions and revive flagging growth in the world's second largest economy.