The Chinese securities regulator seems damned if it does, and damned if it doesn’t, police the stock market.

The China Securities Regulatory Commission (CSRC) on Sunday told brokerages to review trades and enforce rules that require the use of real names and national identification numbers.

“Chinese authorities have frantically tightened controls on trading while partly blaming illegal behavior for the 30% drop that has wiped out trillions of dollars worth of market value in just three weeks,” said Reuters. “The latest warning by the CSRC is meant to clamp down on a trick whereby a single investor controls multiple accounts — often registered under other people’s identification numbers — to bid the price of a stock up or down.”

On Sunday, the official Xinhua news agency reported that an investigation has led to certain brokerages being suspected of manipulating futures prices and other “malicious” trading.

Reuters characterizes this as another desperate move by a government eager to save Chinese stocks from further plunges. Meanwhile, the last lines of the story note that these measures seem to be working as evidenced by the current three-day rally.

Asia Unhedged  views this as a good thing that will weed out bad practices and bad actors from the market. Free markets are the holy ground that all governments love to trample on whenever there’s a crisis. When China does it western pundits characterize it as unconscionable meddling in what should be a free market economy driven by fundamentals. When the US does it, it’s called QE2 and “too big to fail.”

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