Banking & Finance

Reform agenda

Will new securities regulator be boon for market?


New man at the helm: Yi

In most countries the announcement of a new regulator for the securities market barely musters a mention in the newspapers. Not so in China, where the appointment of a new China Securities Regulatory Commission (CSRC) chairman is always big news because it impacts on something so dear to many people’s hearts: their stock market returns.

The country’s legions of retail investors are currently on the lookout for signs that augur well for their finances in the year ahead. And so far, there are rich pickings in the symbolism associated with the appointment of the CSRC’s new chairman, Yi Huiman.

Last weekend, Xinhua announced that Yi had replaced Liu Shiyu, who had been at the helm for three years, spending most of his time clearing up the mess from 2015’s stock market crash. Much of Liu’s energy had gone into ridding the market of the “financial crocodiles” that were accused of “taking advantage of loopholes in the system” and “skinning and sucking the blood” from retail investors (see WiC356) through their insider trading and manipulations (detained billionaire Xiao Jianhua was one such ‘croc’).

Coming ahead of the Chinese New Year, many investors welcomed Yi’s appointment because they believe his name spells good luck in written Chinese: yi means “easy” and man can be translated into “fullness and abundance” (indeed people in southern China often place red paper labelled with that character on the side of rice containers to symbolise dietary plenty).

China’s news media believes that Yi is a good hire because he has spent his entire career on the operational side at ICBC, becoming its chairman in 2016. The implication is that he has the real-life experience that many past regulators lacked. Yi has “rich experience in the financing sector making real-time, market-based decisions” and “less exposure to the regulatory side” than his predecessors, China Daily applauded.

Yi is the CSRC’s ninth chairman and the South China Morning Post has analysed how the stock market fared under each of his predecessors. Under Liu’s watch, it dropped 8.9%, but that is partly because he spent most of his tenure reducing leverage (analysts calculate that it has halved since 2015).

The question now is what Yi will do differently, especially after attendees at the government’s Central Economic Work Conference requested new reforms to “create standardised, transparent, open, dynamic and resilient capital markets”.

Of course, overseas commentators often complain that such talk needs to be backed up by action, but perhaps it will be under Yi. Beijing has just allowed Standard & Poor’s to open the first foreign-owned rating agency onshore in China and policymakers are taking public feedback on guidelines making it easier for the insurance industry to invest its $2.65 trillion of assets in the stock market.

The government is also keen to attract more foreign capital. Last June’s announcement that the MSCI was including Chinese stocks in its indices was a major step in that direction. As a result, northbound flows through Hong Kong’s Stock Connect went up 50% in 2018 to $44.7 billion.

The MSCI is currently weighing up an increase in China’s weighting from 5% to 20% of the country’s freefloat adjusted market cap. HSBC, for one, reckons this will lead to Rmb400 billion ($59.5 billion) of new inflows during 2019.

Then there’s the new science and technology board, which President Xi Jinping has announced. The idea is to bolster Shanghai’s credentials as an international finance centre, although the prospect of a new technology board took many by surprise. China already has one in Shenzhen (ChiNext) and then there’s the question of where Hong Kong fits into the picture as it’s also keen to attract China’s tech companies away from IPOs in the US.

But perhaps the most significant reform that Yi is supposed to deliver is an overhaul of China’s IPO registration system. The goal is to reduce the role of official approvals from his own agency, and cut down on the queue of companies waiting on the CSRC’s green light to list.

The premise is that the test of whether an IPO should happen should be determined by market appetite for the companies themselves and less by administrative fiat.

Watch this space for whether Yi can get that to work…

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