Digital Media and Risk Culture in China's Financial Markets

Zhifei Mao

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781351715973
• Edition: 1
• Topic: Languages & Linguistics
• Subtopic: Communication Studies
• Index: Languages & Linguistics

This book analyzes the risk cultures in China that have emerged from the entanglement of new communication technologies and financial markets, examining the role that digital media play in Asian modernity and offering an alternative narrative to that of the West. The book illustrates the impact of exclusively Chinese digital media on power dynamics within risk definition, arguing that information and communication technologies (ICTs) empower individuals, enabling them to compete with an expert-oriented risk culture controlled by Government- and banker-led media outlets. With struggles, competitions, compromises, and confrontations, major communicators in financial world are collectively producing risk cultures based on interpersonal relations instead of contractual obligations, in which insider information is valued over professional analysis. Meanwhile, investors are trapped in a risk culture paradox that they themselves have produced, as they attempt to take advantage of other actors' uncertainties and eventually produce risks for the entire market.

1 Digital Media and Risk Cultures—An Introduction

It was 11:05 am on August 16, 2013. Numbers on a big digital screen suddenly started turning red¹ in a stock exchange hall located in the western part of Shanghai, China. Within minutes, the Shanghai Stock Exchange (SSE) Composite Index soared 5.96%. A crowd of people began shouting, most of them small investors or so-called sanhu.² “What is going on here?” “Anyone got any information?” “The government has decided to save the stock market; I told you so!” “I am going to buy some more stocks and follow the big bankers (zhuangjia).³ It’s our chance.”⁴

This chaotic scene continued as people began making phone calls, gathering in groups, and surfing the Internet with their cell phones and iPads. Mr. Huang, a small investor in his fifties, recalled that he was among the ones who turned to the Internet for help: “Online sources are full of rumors. But anyway, the Internet is far faster than TV in delivering real-time information, so we looked online to find the truth (about the sudden market surge).” Another participant in my research shared a similar experience:

It was totally chaotic, a mess, I mean it. Rumors were anywhere. We tried hard to find out what was going on, if it was a great chance or a risky trap. Some investors in my exchange hall truly believed that there was really good news about to be released, and they bought a lot of stocks that day.

Meanwhile, online commentators posted thousands of microblogs about the unusual upsurge in stock prices on the biggest social network site in China, Sina Weibo. The sharp increase seemed to come out of nowhere. Some people suspected that the surge resulted from some sort of mechanical problem in the financial transaction system. Others believed that the Chinese government was preparing to release some game-changing policies that would stimulate the market. Xia, a university student majoring in business management, was in his computer class when this event occurred. He busily checked people’s messages on his smartphone and tried to trade stocks using his app, all while cautiously avoiding the professor’s attention. He wrote a post on his own Sina Weibo account that morning with excitement: “Damn it, the market’s crazy. I am in, guys.”

At 11:47 am, the SSE declared that “the system of the Shanghai Exchange is absolutely normal” on its official Sina microblog. In Mr. Huang’s stock exchange hall, an investor shared this news with others only a few minutes later after its release. When officials made statements, they simply ruled out the possibility of a technical error in the transactions. The small investors in the hall, including Huang, were over the moon. “Because the officials said so, we thought, at the time, that it was legit. There must be some great chance coming,” Huang said. He and many other investors prepared to invest more money in the afternoon. Xia, however, started to have some doubts: “I wasn’t totally buying it. The crucial issue was what the big investors would do in the next step.” He tried to keep his cool while continuing to surf the net seeking alternatives to the SSE’s claim.

At around 12:30 am, one small investor in the stock exchange hall announced that he had heard from a friend by cell phone that the unexpected surge in stock prices resulted from a brokerage firm’s mistake. The name of the firm is Everbright, which is a listed company in China’s stock market. According to the hearsay, the firm had accidentally invested a large amount of money into the stock market. Two other small investors who were online supported his claim, finding the same piece of information. Despite the lingering doubt, “many investors in the hall still believed other rumors. Not many people believed it to be a threat at that moment,” Huang explained. Meanwhile, using his smartphone, Xia located the exact same piece of information, which already had been reposted many times. He was impressed by the rarity of such “unambiguous information that named the exact company clearly, the Weibo account of which was an official media outlet. I was not sure at that time … but it was alarming, of course.” He withdrew from his initial enthusiasm and no longer considered putting all of his money in the market.

When the stock market reopened at 1:00 pm, officials from SSE confirmed that Everbright Securities stock had been forcefully suspended. At the same moment, the firm admitted they made a technical mistake, announcing that it had purchased a huge amount of stock shares due to a mechanical problem in its trading software. The Shanghai stock index plummeted nearly 100 points between 1:00 pm and 3:00 pm. Huang told me,

I lost 5,000 CNY in a day because of this. My pension is over 2,000 CNY per month, and my wife was angry… A woman in the hall cursed like crazy because she thought the increase in the index was because of some good news, and then bought a lot of stocks in the morning. We small sanhu are always getting played and being hurt.

As another small investor, Xia agreed that surviving in China’s stock market is hard, but he believes the battle can be won with a good strategy. “The crucial thing is not to trust anyone easily,” said Xia,

Do not trust the listed companies. Do not trust the media. Do not trust the stock commentators. Be smart and careful, look through every piece of information cautiously before making up your mind … Sanhu’s information sources are worse than ‘bankers’, for sure, but there are still good chances.

Mr. Chen is a big investor, or as Chinese people say, he is a “banker” (zhuangjia) who has engaged in financial investments for many years. He had a very different interpretation and experience of the Everbright crisis from that day when compared to Huang and Xia:

Look, the data showed that it was just not right. The trend (of the stock index) was very strange. It was not normal, not the way a sane banker would trade. If you are a professional, like me, you could tell. I thought it was dangerous to trade stocks at that time, and I phoned some of my friends who worked in this field and discussed it with them … They had good information sources.

Another big investor who worked as a fund manager was also a step ahead of the small investors:

I believed that I knew something was not right before the (small) investors knew. We have our ways. After I knew that it was because of the Everbright Securities accident, we quickly came up with strategies to protect our fund from the dangers by calculating future market trends (…) But anyway, I have to admit that we still lost money in the crash. This kind of unpredictable risk is not welcome at all, for it increases uncertainties and chaos in the market. Even if someone won some easy money in this case, it is still highly risky because winning or losing depends on luck, not analysis. And you will probably lose in most cases.

This dramatic event in China reveals the interesting power dynamics among different actors in finance, encompassing the trust issues resulting from the strong government, the grassroots struggles of small investors, and the dominant groups’ strategies of defense to maintain their positions. As a communication researcher, I am most interested in this event because of the crucial role that digital media played in reshaping the power relations of financial risk. On the one hand, information and communication technologies (ICTs) triggered a financial crash, causing insecurity and uncertainty instead of reducing them. It’s hard to imagine that a goliath market in China would be shaken to such an extent—not by a powerful government’s policy or a true economic disaster, but by a single “fat-finger error” in ICTs.

Meanwhile, during this event, digital media facilitated almost every communication practice (Couldry, 2004; Craig, 2006), the sayings and doings (Schatzki, 2010) of risk communication. Different actors from the finance community responded to the uncertain event by questioning, chatting, accusing, and analyzing, using the various communication technologies at hand to transform uncertainty into security. The information flow was intensive, the meanings of risk varied, and the power relations in finance became complicated. In the Everbright financial crash, it seems the big investors nailed it in communicating financial risk. They were definitely the experienced and professional ones, and more importantly, they had stronger social capital in acquiring and interpreting information. As the big investors pointed out, their “friends” or “contacts” were instrumental during this financial disaster, granting them swift and secure information. The small investors and the government itself might suspect that this so-called friendship results from big investors’ guanxi⁵ composed of more informed individuals and institutes—potential communicators of insider information. Theoretically, in this situation, there is no way for sanhu to compete with the big bankers in risk communication. Only another mighty giant, the Chinese government, can step in and take the lead. But the financial world in China is far more than a clash of the titans. Despite being the obvious underdog, the small investors use their own communication strategies to make sense of crisis situations, using ICT as a weapon. They continue to voice their opinions about the financial markets on different cyber platforms, or comment on and evaluate the experts. They joke, mock, and engage in self-effacing chatter. They refuse to excuse themselves from the games, and sometimes, they even succeed in making a difference in risk communication in China.

Why is this the case, and what are the consequences? To understand the full picture, we need to take a look at the investors’ practices in risk communication. When trying to make sense of the uncertain situation, investors use a particular platform or turn to a particular person, among all other options when it comes to information sources. It appears to me that these choices are patterned instead of random, as if these actors are following some collectively agreed-upon norms and rules. In this book, such norms and rules related to risk communication are called risk cultures (Lash, 2000). These norms define what language we use when communicating risk, which practice to choose in an uncertain moment, and when to trust or distrust someone. In China, I argue, digital technologies play a crucial part in facilitating very unique risk cultures that differ from those in “more mature” markets.

“Professional West?” Media and Expert-Oriented Risk Cultures

But before jumping into the specific cases of risk cultures in finance, we may take a step back to look at a big picture of risk first. When the dark side of modernity gradually comes to light, the general public starts to voice their own opinions about the risks introduced by modernization. These perspectives, in many cases, depart from the experts’ claims (Beck, 1992). There exists a breaking down of hierarchy in defining risk in many contexts, especially during grassroots social movements regarding environmental problems and health issues (e.g. Freudenberg & Steinsapir, 1991; Foster, 1998; Rome, 2003; Nieusma, 2011). The once silent minority groups within a risk community have tended to be the biggest victims of manufactured hazards. Their own crisis experiences have made them experts on risk (Johnson & Ranco, 2011), and they are therefore no longer willing to follow instructions from big brother, big capital, or big academia. They have faced one major obstacle to their grassroots protests, however: the mass media system. The ownership of mass communication technologies (e.g. satellite TV) was centralized, and the cost to build a mass media platform was beyond activists’ grasp. In an authoritarian country, the mass media system is, at core, a propaganda machine for the government; meanwhile, in a liberal society, it unavoidably falls under the influence of big capitalists and their political representatives (McQuail, 1994; Humphreys, 1996; Sparks & Reading, 1997). Either way, grassroots movements have had little room to talk about risk in front of a mass audience, and even if they had such a platform, the mass media could discredit their voices as radical and irrational.

The distribution of ICTs seems to have turned the tables, providing more fertile soil to green movements and other from-the-ground-up populist efforts. The government and corporations maintain control, but in the era of digital media, individuals can use a one-to-many media platform at virtually no cost (Dominick, 2010), expressing their own thoughts on catastrophes instead of being overshadowed by elites. In some extreme cases, grassroots activists have taken the lead in communicating risk, searching for reasons and ascribing responsibility (Yang & Calhoun, 2007; Johnson & Ranco, 2011).

Unlike other social dimensions, however, the financial sector seems almost immune to such transformations in risk communication. In most “mature” capitalist nations, the discursive power rests on the shoulders of so-called professionals when it comes to finance issues. Indeed, any news reported on issues related to finance remain tightly controlled by, or given in the name of, professionals. Experts from government departments, banks, and finance companies take it for granted that they should be making judgments and predictions about financial risk. Ordinary people, on the other hand, have no way of claiming a seat at boardroom and policy-making tables, nor do they own any outlet for expressing their thoughts on these government policies or professional analyses.

Why is the hierarchy of financial communication so untouchable? What separates the general public from a position enabling them to define financial risk? I argue that one important reason behind this phenomenon is the particular risk culture (Lash, 2000) of finance. It entitles certain expert individuals, institutions, and economic entities privileged positions in defining risk. In this book, I define risk cultures as the norms, beliefs, and rules that the actors of a risk community voluntarily or involuntarily agree upon. These norms emerge from the everyday communication practices of different social actors, in turn guiding risk communication in the specific communities of risk. From fund managers to financial news reporters, from economists to law and policy makers, the actors with the loudest voices repeatedly assert that financial risk is somehow “imbued with the image of science” (Bell & Mayerfeld, 1999, p. 2). This discourse forms the legal basis of expert-oriented risk cultures, a claim that insists that financial risk and the financial system in general are too complex to be handled by ordinary people, who are irrational and unprofessional. Instead, financial situations should be and must be described, communicated, and solved by rational and professional determinate judges (Lash, 2000) or expert systems (Giddens, 1994, 2013). This belief rests at the core of expert-oriented risk cultures; in essence, it is what Bell and Mayerfeld (1999) called the scientific rationalization of risk, a process through which experts apply knowledge to transform the unknown and the uncertain into clear probabilities. Here, knowledge consists of particular languages, models, formulas, and concepts. By communicating such knowledge, expert systems exclude ordinary people—or even experts from other fields—from engaging in the communication process. When risk is calculated using a formula or model, its social meanings are eliminated, and only mathematical meanings remain. Suddenly, it becomes “calculated risk” (Abolafia, 2001, p. 29) based not on the rationality of the investors who take the risk but on the economists who measure it.

Obviously, the dominance of this expert-oriented risk culture has roots in other social organs, all of which have faced several confrontations. Some of these contests have moved from the ground up, as we can see in the populism of the green movements discussed above. Meanwhile, some experts have responded to calls from the general public, jointly challenging the existing dominant risk definers. These dominant structures include the government, the big capitalists, and even their own colleagues and institutions (Frickel, 2004 & 2011; McCormick, 2007). In the post-Silent Spring era, these scientist activists have collaborated with local communities and NGOs to confront various risk issues (Mazur, 1...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• Acknowledgments
• 1 Digital Media and Risk Cultures—An Introduction
• 2 Major Players of Risk Communication
• 3 Communicating Stock Quotes
• 4 Communicating National Affairs
• 5 Communicating Company Information
• 6 Stock Commentators and Commentary
• Conclusion
• Index