In the News: Screenshots on Social Media Catch the Eye of the CSRC; Management Fees of Mutual Funds Decrease; and Record Number of Delistings

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"Little Essays" on Social Media are Affecting Share Price

The Chinese Securities Regulatory Commission (CSRC) aims to control the social media phenomenon of Xiaozuowen, meaning "little essay," that is affecting share prices, according to the FT. This phenomenon is a result of tighter controls over information, which has encouraged traders and investors to turn to alternative sources. Xiaozuowen is typically unverified news, shared as an image in WeChat or other social media platforms in order to avoid text-based censorship. The phenomenon came to prominence during China's COVID-19 lockdowns, when a lack of clarity from official media outlets led to online speculation. In November 2022, a screenshot highlighting the reopening policy spurred a two-day rally that added $450 billion to the value of stocks. Text screenshots claiming imminent policy changes in various sectors such as property and commodities are increasingly catching the attention of investors. Moreover, regulators are concerned about their accuracy and the motives behind them.  An early example of action being taken against Xiaozuowen is the CSRC's fine of RMB 360,000 ($49,700) imposed on Esteel—a small commodities consultancy.  The fine was imposed last month for publishing information on WeChat that was "false" and "without verification." CSRC said two Esteel employees used WeChat last year to claim that Tangshan, China's main steelmaking city, would impose production curbs and that the miner Rio Tinto would reduce its production. As a result, the price of iron ore futures climbed 7.6% — a movement worth tens of billions of renminbi.

Tan Yifei, founder of Beijing-based consultancy Jince Frontier, said the popularity of Xioazuowen showed the lack of reliable information services in China. It indicates that current policy guidance is not clear enough. This is a result of China's policymaking process being increasingly opaque in recent years. At the same time, the CSRC is facing challenges in dealing with the impact of Xiaozuowen on share prices. The sources of Xiaozuowen are numerous and difficult to trace.