China cracks down on influencer marketing amid stock frenzy

Chinese authorities are cracking down on aggressive influencer marketing of investment products, signaling concerns over a stock market frenzy driven by an artificial intelligence boom and the government’s high-tech ambitions.

Taming a market rally without denting investor appetite will require a delicate balancing act, especially since high hopes for tech breakthroughs are fueled by the government’s own policy goals.

Multiple Chinese media reported in late January that the China Securities Regulatory Commission imposed penalties on a fund management company for paying online influencers without proper qualifications to promote their products.

The company, identified as Fund D, “induced investors with incompatible risk tolerance” to buy risky products, according to a CSRC document quoted by media reports. It added that the company “neglected professional compliance in pursuit of short-term growth.” The CSRC did not respond to a request for comment.

The action was the latest sign that officials were concerned over excessive market volatility.

In January, 4.91 million accounts were opened to trade mainland-listed shares, the largest monthly increase since October 2024, according to data provider Wind. Investors have flocked to lesser-known tech stocks tied to themes like AI, semiconductors and commercial aerospace.

The benchmark CSI 300 Index, a gauge of heavyweight stocks listed on the Shanghai and Shenzhen stock exchanges, is up a modest 0.7% this year. But the CSI 500 Index, which tracks small and midsize stocks, is up 11.2%. The Science and Technology Innovation Board Composite Index, a benchmark of stocks listed on Shanghai’s tech-focused STAR market, has gained 10.5%.

Shares of industrial equipment supplier Wuxi Autowell Technology have gained more than 120% since the start of the year. Those of chipmaker Puya Semiconductor and solar panel component maker Focuslight Technologies have more than doubled. Supcon Technology, a producer of automation equipment, is up by 65%.

An analyst at an international securities firm said the influx of capital into these stocks is partly driven by a lack of other investment options, with yields on government bonds low and property prices falling, rather than expectations of the companies’ fundamentals.

Wild swings in commodity prices have also stirred market turmoil. Shenzhen-traded units of a fund investing in silver futures doubled in January, eventually driving up the units’ price far above their value implied from silver futures prices. Online tutorials claiming that investors can make a quick profit by purchasing units from the management company and selling them on secondary markets spread online, fueling the frenzy.

The fund manager, UBS SDIC Fund Management, suspended new subscriptions on January 28 “to protect the interests of fund unitholders.” The Shenzhen bourse suspended trading by investors it said were engaging in “abnormal trading behavior.” Silver futures prices fell sharply around the same time. The fund’s units dropped by their daily 10% limit for five straight days on the secondary market.

China’s leaders have been supportive of the stock market as a platform to boost their ambitions of achieving greater self-reliance and strength in science and technology. Regulators eased listing requirements for companies in strategic industries and fast-tracked the screening process for companies like chip startup Moore Threads, whose shares jumped fivefold in their trading debut in December.

At the same time, officials have stepped up measures to curb volatility. During a January work conference attended by CSRC chairman Wu Qing, officials vowed to crack down on “excessive speculation and market manipulation” and “resolutely prevent drastic market fluctuations.” A key task is managing the expectations of retail investors, who are estimated to account for over 80% of daily trading volume.

“One of the key objectives for the Chinese government is to achieve low volatility, because you want to have low volatility to encourage long-term investment,” said Jason Lui, head of APAC equity and derivative strategy at BNP Paribas. “There is a perception that the Chinese equity market always goes through these boom-bust cycles, and when you have high volatility, you may end up attracting investors at the wrong time. Reducing volatility … is a foundation of attracting investors from different profiles and with different time horizons.”

Before the crackdown on Fund D, the CSRC fined influencer Jin Yongrong and banned him for three years from the securities market after investigating him for alleged stock market manipulation. Regulators accused Jin of making an illegal profit of over RMB 41 million by using his influence to spread stock recommendations and drive up prices, before selling those shares.

Snowball Finance, a finance-focused social media app, quickly banned Jin’s account as well as more than 20 others, although it did not detail how these users might have violated its rules.

In a more direct measure to cool trading activity, the Shanghai, Shenzhen, and Beijing stock exchanges last month raised the deposit ratio for margin trading, the practice of borrowing money to bet on a stock, from 80% to 100%.

Exchange-traded funds seen as favored by the so-called “national team” of government-backed investors also recorded large outflows last month, further fueling speculation over Beijing’s intentions.

Provinces across the country have recently pledged to support emerging industries like commercial aerospace, the low-altitude economy and new materials over the next five years. A national five-year plan will be finalized at the annual legislative meetings in March. “Low-altitude economy” generally refers to drone-provided services like deliveries and crop spraying.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.