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Business trends

Tongue tied: China's censorship arm squeezes financial analysts

Prominent research head booted after warning of capital flight, market downturn

The scrubbing of Hao Hong's social media accounts indicates that he has been the victim of Beijing's long censorship arm. (Photo by Ken Kobayashi)

HONG KONG -- Hong Hao was among China's most prominent market analysts and the head of research at Bank of Communications International until he was abruptly shown the door this month.

Gone too were his social media accounts where critical remarks about the state of China's economy and virus lockdowns reached 3 million followers.

That triggered rumors about Hong being the latest victim of China's long censorship arm, which is increasingly squeezing analysts and economists who question Beijing's version of reality.

In March, Hong had warned in research reports about capital flight from China and said the Shanghai Composite Index could tumble below the psychologically important 3,000 level. He was out of a job less than two months later.

The affiliate of the state-owned bank was quoted as saying the Hong Kong-based analyst left for personal reasons. But many believe that bad-mouthing China is what cost Hong his career.

"[He] was very high profile...It's not that you can't tell the truth, but you can't go that far," the research head of a Chinese state-linked investment company said on condition of anonymity. "You don't show the worst-case scenario and you say what could be done in response. [Hong] didn't talk about solutions and that was like adding fuel to the fire."

Hong, who did not address questions about his departure from the bank, has not vanished. He's on Twitter with his straight-shooting comments about markets and Chinese companies, along with the odd overweight cat video to highlight flabby economic data.

His story is not unique.

Several high-profile Chinese economists and fund managers have seen their accounts on China's Twitter-like Weibo suspended in recent months after remarks about lockdowns and slowing growth attracted unwanted attention.

China's economy has been hit hard on the back of jitters over the Ukraine conflict and its zero-COVID policy, which triggered shutdowns in major cities and slammed the brakes on business activity. Despite rising public anger, Beijing has doubled down on its virus strategy and scrubs social media comments criticizing it.

The China Securities Industry Association recently told members to beef up oversight of their analysts.

"As public figures, securities analysts' words and deeds attract wide attention," it said in a late April industry circular. "Inappropriate comments and actions from a particular analyst can trigger a reputational crisis at their institution, or even the whole industry."

This year, J.P. Morgan got a lesson in touchy subjects after its analysts downgraded ratings on more than two dozen Chinese tech companies, including internet titans Alibaba and Tencent, the latter of which is China's most valuable company by market capitalization. It called the stocks "un-investable" in the short term.

The negative reports -- partly linked to a wide-ranging Chinese regulatory crackdown on the tech sector -- triggered a market sell-off with the Hang Seng Tech Index tumbling nearly 10% in one day.

The U.S. investment bank was reportedly removed as lead underwriter for a Chinese company's initial public offering in the wake of the damning reports. It later said the research had been issued in error and upgraded its view on the companies. J.P. Morgan did not reply to a request for comment.

In 2020, brokerage Zhongtai Securities retracted a report that suggested China's unemployment rate had soared above 20% -- much higher than official estimates -- as millions lost their jobs during the pandemic. Zhongtai's research chief was later yanked from his post, Caixin business magazine reported.

"To control the official narrative of its economic performance, China's government has increased censorship of economic reporting," said a November bipartisan report by the U.S.-China Economic and Security Review Commission.

"[This] compounds long-standing practices by propaganda agencies and China's national statistics bureau to paint a favorable picture of the economy in order to control market and societal responses to economic news."

While the touchiest subjects have shifted from thorny U.S.-China relations to Beijing's virus response, squeezing financial analysts over their reports is not new.

"This is not a problem at one particular company. It is the case for Hong Kong and the whole of the mainland," Law ka-Chung, former chief economist at the Bank of Communications in Hong Kong, told Nikkei. "The goal posts are constantly shifting."

Law said colleagues have told him that they tone down subordinates' reports, sometimes so drastically that they do not recognize their own work.

A research head at a Chinese investment group in Hong Kong acknowledged that he heavily edits research.

"We don't want [the analyst] to feel bad, but we need to tell [them] that if this is published, you could lose your job," said the executive, who asked not to be named. "Do you want to lose your job?"

Short-seller Andrew Left knows what can happen when Chinese companies are criticized in public view.

In 2016, Hong Kong regulators banned Left from trading in Hong Kong markets for five years over claims he spread false information in a 2012 report that accused property developer China Evergrande of being insolvent and committing accounting fraud.

China Evergrande is now embroiled in a debt crisis that has left it with some $300 billion in liabilities.

"Everything I wrote 10 years ago has become true, demonstrating the importance of freedom of speech and short selling in the market," Left told CNBC last year.

Left's lawyer Timothy Loh told Nikkei: "Protecting the market from contrarian views may stifle discussion necessary for the market to discover the truth."

And now, as Beijing tightens its political grip on Hong Kong, there are concerns that mooted plans for "fake news" legislation could further choke financial analysis in the international business hub.

"If a fake news law is introduced, it's easy to imagine that would make people even more cautious about expressing views they think might be politically sensitive," said Simon Cartledge, founder of Hong Kong research company Big Brains. "More financial institutions will try to take a safety-first view."

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