As China's economic growth sinks to a 25-year low, the government is going to great lengths to portray the country as a safe place to invest.
In recent weeks, regulatory agencies have pledged to prevent "asset bubbles" and punish "financial crocodiles" that prey on small investors. The message aimed at both domestic and foreign markets is that China can control investment risks.
With the announcement of lower economic targets for 2017, risk reduction and stability have become the government's top concerns.
"Stability is of overriding importance," said Premier Li Keqiang as he presented the government's work report to the National People's Congress (NPC), China’s rubber-stamp legislature, on March 5.
"We must not allow the red line to be crossed concerning financial security, people's wellbeing or environmental protection," said Li, according to state media.
Li has set this year's goal for gross domestic product growth at "about 6.5 percent," the slowest pace in 25 years and a step down from the 2016 rate of 6.7 percent.
The slowdown follows signs that China's traditional economic engine of investment may be faltering.
Last year, fixed-asset investment (FAI) rose 7.9 percent, slipping from 10 percent in 2015 and 15.7 percent in 2014, according to the National Bureau of Statistics (NBS).
Growth of foreign direct investment (FDI) fell to 4.1 percent in 2016 from 6.4 percent a year earlier, before suffering a steep year-to-year drop of 9.2 percent in January.
China's nonfinancial outbound direct investment (ODI) soared 44.1 percent last year as capital fled toward safer markets and higher returns abroad. But in January, ODI plunged 35.7 percent from a year earlier after the government tightened its capital controls.
In a remarkable series of steps before China's annual legislative sessions, regulators announced stiff penalties for alleged investment violations, market speculation and predatory practices.
Targets included insurance companies, financial institutions and opaque investment groups involved in merger and takeover activities.
On Feb. 26, Liu Shiyu, chairman of the China Securities Regulatory Commission (CSRC), blasted the big investors as "barbarians" and "robbers" with unusual vehemence.
"In the capital market, being a financial mogul is only a half-step away from being a financial crocodile," Liu said.
Tougher enforcement regime
The crackdown follows last year's hostile takeover battle by insurance interests for China Vanke, the country's leading property developer, and a series of deals backed by highly leveraged or obscure funding sources.
Among those singled out for punishment, Yao Zhenhua, chairman of Foresea Life Insurance, was barred from the industry for 10 years by the China Insurance Regulatory Commission (CIRC).
The regulator also suspended Evergrande Life from stock trading for one year, citing its use of insurance funds for "short-term speculation" that caused "grave social consequences," the South China Morning Post reported.
The Vanke takeover bid was led by Foresea parent Baoneng Group. The insurance unit aggressively sold high-risk policies that resembled investment products paying up to 8 percent annually to raise cash, Nikkei Asian Review said.
The regulatory crackdown on the companies may be symptomatic of a tougher enforcement regime in the financial sphere.
Last week during the NPC sessions, the CSRC announced stiff penalties against two companies for making false asset claims in a restructuring deal.
The agency charged office service provider China Nine Top and AnShan Heavy Duty Mining Machinery with "extremely dirty tricks and severe violations of the rules," the official Xinhua news agency said.
Separately, the CSRC said it confiscated 1.2 billion yuan (U.S. $173 million) in illicit profits from an alleged share price manipulation scheme involving the Shenzhen and Hong Kong stock exchanges.
In a report on its activities, the CSRC said it launched over 300 probes of illicit investment practices and market manipulation last year.
"The CSRC is committed to fighting against misbehaving financial magnates who will stop at nothing for money and power," said the agency, as quoted by The New Paper of Singapore.
On March 1, the Supreme People's Procuratorate (SPP) said indictments were filed against 36,300 suspects last year in 23,700 financial crime cases, Xinhua reported.
Regulators have been trying to tame high risks and volatile forces in the market that led to a 41-percent plunge in the Shanghai Stock Exchange Composite Index over four months in mid-2015, wiping out small investors.
Walking a fine line
At the same time, the CSRC has encouraged the market with eased rules for initial public offerings (IPOs), which were stalled during the crisis to keep speculators from selling existing shares to chase higher returns.
The regulatory task mirrors the challenge facing the People's Bank of China (PBOC) in managing monetary policy this year.
"The government has to walk a fine line to keep the world's second largest economy steadily expanding while avoiding financial risks," Xinhua said.
The Xinhua commentary quoted a senior official of the National Development and Reform Commission (NDRC) planning agency as citing eight "major risk areas."
The list includes "bad loans, liquidity strains, bond defaults, shadow banking, external market shocks, property bubbles, government debt and online financing."
The goal seems to be avoidance of a sudden decline rather than hoped-for growth.
At a meeting of the Central Leading Group on the economy, President Xi Jinping set the theme of "seeking progress while maintaining stability" for the government's work this year, state media said.
"For 2017, the significance of stability could not be more emphasized," Xinhua said in another commentary on the government's goals.
In what appeared to be a lukewarm assurance of stability last week, Finance Minister Xiao Jie told reporters that government debt risks "are generally within control," acknowledging "illegal debt-raising practices by local governments."
Another significant risk is a property bubble, which is partially linked to the government's concerns with speculation and the Vanke takeover bid.
Last month, the government claimed success in cooling the growth of housing prices after increases slowed in January for the fourth month in a row, but the evidence appeared scant.
The NBS survey of 70 large and mid-sized cities found month-to-month increases for new housing in 45 markets, a slight improvement from 46 in December and 55 in November.
Average month-to-month price growth in January fell to 0.2 percent from 0.3 percent a month before, Reuters said.
The claim of progress in deflating the housing bubble followed government pressure on local authorities to impose restrictions on second and third home purchases for speculative investment by well-heeled buyers.
"Houses are built to be lived in, not for speculation," said President Xi in a widely cited statement on property price curbs.
Risks of a real estate crash
But the government's claims of success in battling the bubble are debatable.
While month-to-month increases have been modest, the NBS data for January showed year-to-year price hikes of 24.7 percent in Beijing, 23.8 percent in Shanghai and 48.8 percent in Shenzhen. Of the 70 cities, only four recorded price declines from a year before.
The issue of housing speculation is critical for China because the runaway sector has spurred demand for energy-consuming products including coal, steel, aluminum, cement, and flat glass.
Overbuilding in the property market has contributed to cheating on government targets for cutting production overcapacity in the coal and steel sectors, as well as increased outbreaks of smog.
The risks of a real estate crash are also linked to the government's concerns with stock market manipulation, since China's huge pool of capital constantly seeks out alternate opportunities for higher returns.
"This is the regulatory behavior you get with a giant ball of liquidity sloshing around," said Derek Scissors, a resident scholar at the American Enterprise Institute in Washington.
In his address to the NPC, Premier Li promised steps to deal with problems that have pushed housing prices beyond the reach of poorer buyers.
Li said the government would "reasonably increase" land supplies for housing in markets with the highest price increases while trying to cut the backlog of unsold homes in third and fourth-tier cities, but he offered no new ideas.
By enumerating the many risks to stability, the NDRC is signaling that the government will take a more coordinated approach to economic management instead of letting liquidity flow from one speculative bubble to another.
The government sees the management effort as critical to stability at a time when it is cutting overcapacity industries, closing "zombie" enterprises by curbing credit and eliminating jobs.
"China will accelerate building a supervision coordination mechanism and strengthen macro-prudential regulation to prevent systemic risks," Xi reportedly told his economic leading group.
But in the course of promoting stability over growth, regulators seem likely to classify a broader range of investment activities and transactions as outside the law.
"Financial supervisors should fix weak links and act hard against illegal activities," Xi said.