Let’s face it: When the People’s Daily runs an article about shorting selling in China, it’s enough to make an investor stop dead in his tracks.

The People’s Daily was the propaganda machine of China’s Communist Party. Maybe that’s still true. But this time, instead of promoting Maoist rhetoric for the greater good, it’s writing about CYA trading tactics.

Along with the likes of the Wall Street Journal and the International Herald Tribune, the People’s Daily story ran on Oct. 6 — only a few days after Hong Kong said it was on the verge of banning short selling.

Is this a war of trading regulations? Hong Kong, along with many other markets, has halted or curtailed short selling - branding it as subversive to overall market stability.

As it turns out, China has a different take on short selling.

Whether or not this is a good thing for investors remains to be seen.

China’s securities regulator announced Sunday that it will soon launch short selling and margin trading for securities firms. China’s intent is to reverse the existing one-way trade on both Shanghai and Shenzhen stock markets.

As it stands, investors in those markets cannot capitalize on falling markets. If a stock drops, they can either wait it out or walk away.

The CSRC also hopes the new regulation will stimulate trading in general.

The CSRC is of the mind, however, that both short selling and margin trading would in fact help cushion a declining market by giving investors to also profit from falling prices.

It will select the first securities firms based on their net capital — a smart move given the number of bankruptcies and near failures we’ve seen the U.S. and Europe.

A CSRC statement released on Sunday said that the trial project was open to all kinds of securities firms across the whole country.

If the experiment is viable, margin trading would be normalized in all securities firms, it said.

The changes have already been approved by the cabinet.

For American investors, perhaps the best way to test out the new regulations is through composite indexes for the Shanghai and Shenzhen markets.

The SSE Composite Index (Shanghai:000001.SS) and the TSEC weighted index (Taiwan:^TWII) can be traded with ADRs here in the US.

Given the cautious approach by the CSRC, the impact on the indices will probably be minimal. Still, for American investors it could point the way to future profits.

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