Shortly before Xiao Gang was made chairman of the China Securities Regulatory Commission (CSRC) in 2013 he gave an exclusive interview to Phoenix TV. Picking up one of the many photos of his wife in his office, Xiao told the reporter: “Look, my wife is very beautiful isn’t she? Not only is she pretty, she is also very talented… The only thing I have done right in my life is marrying her.”
During Xiao’s short tenure at the CSRC, his critics turned that uxorious remark against him, joking on social media that since he’d taken the job as China’s chief stock market regulator he’d still got nothing right except his earlier marriage to Wu Touhong.
Xiao was removed as CSRC chairperson last week but the 58 year-old’s position had been under intense speculation since June last year when Chinese stocks took a jaw-dropping 60% plunge over a two-month period. His fate seemed to have been sealed last month following the introduction of the flawed circuit breaker system, which was rescinded after just four days (see WiC308) following more market chaos.
Holding the top job at the CSRC has never been an easy task – a role that requires fulfilling the central government’s demand for stability in the stock market. That’s a hard ask. The market watchdog’s first boss – Liu Hongru in 1992 – describing the job as akin to living on a “volcano crater” (see WiC223).
Unlike central bank governor Zhou Xiaochuan – who has headed the People’s Bank of China since 2002 – the top job at the CSRC looks more like a game of musical chairs. Xiao’s predecessor Guo Shuqing took the job in 2011 but was reassigned after two years to become the governor of Shandong province. Xiao’s successor, Liu Shiyu, formerly the chairman of Agricultural Bank of China, now becomes the CSRC’s eighth boss in 26 years.
Akin to English football fans booing the manager of their underperforming club, many retail investors have been calling for Xiao’s head for months. “The CSRC reacted like a kid when dealing with the stock crisis and the circuit breaker system,” Netease Finance concluded. “As a banker Xiao Gang [a former head of Bank of China] has been dubbed as ‘Mr Risk Control’ but this reputation looks laughable.” With Xiao gone, more thoughtful observers are wondering if there is something wrong with the system itself. “The Chinese capital market has not reached a high market-oriented and law-based level, so the public relies heavily on the government [for signals on the market’s direction] and this put pressure on the job,” Dong Dengxin, a finance researcher at Wuhan University of Science and Technology, told China Daily.
When Xiao was installed at the securities watchdog, he was hailed as a supremely suitable candidate to spearhead changes in China’s financial markets “Good at team management, relatively young at 54 and also fluent in English, he may have a chance to prove more useful for the country’s economic reform and opening up,” China Daily wrote back then. “Indeed, Xiao should be emboldened by the market’s anxiety for change.”
Just six months into the job, Xiao lifted a longstanding moratorium on new listings and introduced IPO reforms designed to give investment banks and the market a bigger say in which companies got to list, instead of the queue of candidates being dictated by CSRC officials (see WiC219).
The much-maligned circuit breaker system was another proposal that came up during the same period. According to the South China Morning Post, Xiao raised the idea after a trading error by China Everbright Securities caused multi-billion losses in August 2013 (see WiC205).
“Even Xiao’s decision to introduce the ill-fated circuit-breaker mechanism reflected his intention to bring mainland stock markets in line with international standards,” the South China Morning Post’s Wang Xiangwei wrote last week.
Another problem Xiao faced: too little talent within the organisation that he so briefly ran. According to Century Weekly magazine the CSRC has been “fighting a talent flight” to the private sector for years. In 2014 alone about 30 officials left their positions, mostly in search of higher salaries in the commercial sector.
To put the income gap in perspective, the China Youth Daily says that Xiao made about Rmb10,000 ($1,530) a month as the CSRC chairman. His wife Wu Touhong – who used to work at China Minsheng Bank – made more than Rmb4 million a year.
Xiao’s critics say that he didn’t do enough to counter the inflating of China’s stock market bubble from 2014. Indeed he was sometimes described in the media as one of the “reform bulls” who equated the surging share prices with the strength of Chinese economic reforms. Xiao was quoted as saying that the rising prices “had some inevitability and some reasonableness” and was even reported to have endorsed the “reform bull” concept in a speech on the day that the stock market peaked last June.
Can the newcomer Liu Shiyu make any difference, then? Liu boasts a career trajectory similar to his predecessor. The 54 year-old rose through the ranks of the state banking system, including an 18-year stint at the PBoC, where he served as a deputy governor. In the mid-1990s, he also worked at China Construction Bank, at the time headed by Wang Qishan, who is now overseeing the anti-corruption campaign and is one of most important members of the Politburo’s Standing Committee.
Liu’s experience of the equity markets is limited but Century Weekly said the new CSRC boss has been “a particularly good communicator both within the central bank and with other central government agencies”. He is also a regular speaker at financial forums and “does not shy away from being critical of poor oversight of the financial market”, it reported.
The same magazine also published an opinion piece this week by Pu Yongxiang, the vice director of the Institute of Financial Research, a think tank under the central bank. Reposted by many of the major news websites, the article suggested that the CSRC should be brought together with the banking and insurance regulators under the central bank, creating a single, all-powerful financial regulator.
If a change that radical is planned it likely won’t emerge until after the National People’s Congress, China’s parliament, which has its annual get together next month.
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