In the wake of the Chinese stock market’s dramatic fall early this month, police and securities regulators announced they had launched an investigation into “malicious short selling” in the equity futures market. The announcement was part of measures intended to stabilise the market after it fell 30 per cent from its peak in mid-June, but it also raised the question: What makes short selling “malicious”? The lurid terminology, coupled with a lack of detail on what behaviour is being targeted, has led critics to suspect that the investigation is an extralegal attempt to intimidate would-be sellers. But lawyers say that bearish bets can be illegal if they are based on inside information or made with the intent to influence prices. “Short selling itself is neutral market behaviour and not a crime. But if it involves market manipulation, insider trading, or false statements, then it becomes illegal as a violation of either securities law or criminal law,” says Liu Junhai, professor at Renmin University law school in Beijing.