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Daisy Wu

China’s quantitative funds have built trading strategies so closely tailored to the mainland market that foreign rivals cannot replicate them, even as a regulatory clampdown on trading speed reshapes the industry, according to a prominent economist.
“If a top US quant team goes to Japan or India, they can beat virtually all the native quants,” Xia Chun, founder and chief economist at Chinese financial research firm Wiselink Group and former finance professor at the University of Hong Kong, told the South China Morning Post this week.
“But when they come to mainland China, they cannot beat Chinese quants.”
The reason, Xia said, lies in China’s unique valuation logic for state-owned enterprises, whose state-backed financing advantages create pricing dynamics that traditional foreign models fail to capture.
Frequent administrative policy interventions such as initial public offering suspensions and policy-driven trading halts become trading signals that outside models struggle to replicate, he added.
The comments from Xia, who has also advised the China Securities Regulatory Commission (CSRC), came as Beijing tightens its grip on the quant trading industry. On the night of July 31, stock exchanges in Shanghai and Shenzhen cut the dedicated local-network queues that let quant funds’ co-located servers receive price feeds tens to hundreds of microseconds ahead of other participants.
The move achieved, by administrative order, a levelling of trading speed that US regulators and academics have sought - and failed - to achieve for years, Xia said, largely because commercial interests among America’s competing exchanges and dark pools “are too hard to reconcile”.
China “may conduct further speed cuts” if the change proves to make the market fairer, he said, calling it “governance with Chinese characteristics”.
Chinese quant firms have not abandoned the race for speed, however, redirecting capital instead into hosting space closest to exchange servers – in what Xia calls an “arms race” for low latency.
Monthly rents for standard 4,000-watt financial server racks in nearby facilities have climbed by as much as 40 to 50 per cent, the Shanghai Securities News reported last week, citing a surge in demand following the new rules.
To end the latency race altogether, Xia suggested replacing continuous trading with “frequent batch auctions” in which all orders arriving within a set time window clear at a single price – a model he said “has been successfully tested on cryptocurrency trading platforms”.


The clampdown lands during a turbulent stretch for the sectors. Since early July, mainland quant hedge funds have suffered widespread drawdowns, with High-Flyer Quant reportedly losing around 20 per cent across several products.
The industry was further rattled on July 24, when top anti-corruption investigators opened a probe into Fang Xinghai, a former CSRC vice-chairman who had supported greater access for quantitative hedge funds.
Despite retail investors blaming algorithms for the recent market swings, Xia argued quant trading was largely a “scapegoat” for deeper structural flaws in the A-share market.
Genuine high-frequency trading accounts for only a low single-digit share of turnover, he said, with most quant capital deployed in mid- or low-frequency strategies that hold positions for hours or days – and retail losses have “no direct relationship” with the existence of quant funds.
Looking ahead, Xia said he expected “mid- and low-frequency quantitative strategies built on China-specific research to gradually displace traditional discretionary fund managers” as speed advantages shrink under tighter rules.
While administrative oversight has its limits when it comes to strategy crowding, he added, market competition should naturally squeeze out homogenous, underperforming funds.
Even so, a technology gap between institutional and retail investors remains, Xia said, urging investors to “focus on the trading strategy, rather than individual stocks”.
He noted that the vast majority of active retail investors in China trade with limited capital, leaving their small portfolios deeply vulnerable to a single stock hitting daily price limits.
Xia also warned against adopting a “T+0” same-day trading rule, arguing it “would only trigger overtrading and deepen retail losses”.
“Once you trade on a long-term horizon, the quant funds’ speed advantage becomes completely irrelevant,” he said.


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Top US quant teams unable to beat native competitors in mainland China unlike in Japan or India, despite regulatory clampdown on trading


Top US quant teams unable to beat native competitors in mainland China unlike in Japan or India, despite regulatory clampdown on trading.


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China’s quant funds have an edge on foreign rivals, even as Beijing curbs trading speed

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Top US quant teams unable to beat native competitors in mainland China unlike in Japan or India, despite regulatory clampdown on trading

Top US quant teams unable to beat native competitors in mainland China unlike in Japan or India, despite regulatory clampdown on trading