With just days remaining before Hong Kong's July 1 handover to China, investors are wondering how long the party can last. Chinese regulators are expected to announce new curbs on mainland listings in Hong Kong, while their counterparts in Hong Kong are stepping up the battle against manipulations. They face a dilemma, however. If they move too aggressively now, they risk triggering a major sell-off that shatters confidence just as China takes over. But doing nothing poses its own dangers.
Chinese officials are worried about the insider-trading epidemic, too.
If Hong Kong loses its reputation as one of Asia's cleanest capital markets, that could make it more difficult and costly for Beijing to use the territory to raise funds for its heavily indebted state enterprises. For now, authorities on both sides of the border are relying on tactical strikes to keep the rogue traders off balance. Hong Kong regulators, who have had a reputation for being too relaxed about insider dealing, have moved fast to suspend trading in stocks that appear to be manipulated. In China, retribution has been harsher. On June 12, Beijing announced that senior executives at some of the country's largest banks and securities houses were fired and their firms fined for manipulating share prices and lending large sums for stock speculation.