Tack­ling stock mar­ket ir­reg­u­lar­i­ties

China Daily (Hong Kong) - - COMMENT - HONG LIANG

The head of China’s se­cu­ri­ties watch­dog, Xiao Gang, knows some­thing that his agency needs: a few good men.

Xiao has talked openly about the dif­fi­cul­ties the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion faces in com­bat­ing stock mar­ket va­garies, and he has made it known that he is seek­ing to re­cruit 600 pro­fes­sion­als, trained in ac­coun­tancy or law, to be in­ves­ti­ga­tors. The new re­cruits will more than dou­ble the num­ber of in­ves­ti­ga­tors at the agency, and they will ac­count for 40 per­cent of the staff, com­pared to 32 per­cent in the com­mis­sion’s coun­ter­part in the United States.

It is not clear how such an am­bi­tious staff ex­pan­sion plan can be achieved, given the bud­getary and bu­reau­cratic con­straints the com­mis­sion faces, but it can be as­sumed that Xiao has ob­tained the ap­proval from higher lev­els — the reg­u­la­tory com­mis­sion re­ports di­rectly to the State Coun­cil — to go ahead with his plan, the ur­gency of which has been high­lighted by the Ever­bright Se­cu­ri­ties fi­asco that ex­posed the myr­iad ir­reg­u­lar­i­ties that ex­ist in the Chi­nese cap­i­tal mar­ket.

All eyes are now fixed on the reg­u­la­tory com­mis­sion which is ex­pected to pro­vide the an­swers to a host of ques­tions raised by the ab­nor­mal trad­ing by Ever­bright Se­cu­ri­ties that prompted a spike in the do­mes­tic stock mar­ket. That fi­asco has pushed in­vestors’ tol­er­ance of the much crit­i­cized stock mar­ket ir­reg­u­lar­i­ties to the limit, and they are closely watch­ing how the com­mis­sion will han­dle the case, which in­volves a pow­er­ful State-owned en­ter­prise.

In the past sev­eral days, the do­mes­tic me­dia has been howl­ing for blood. “Only when Ever­bright is se­verely pe­nal­ized can there be hope,” de­clared Xin­hua News Agency, which said that the de­ba­cle poses a stern test of the com­mis­sion’s de­ter­mi­na­tion to en­force the law.

e stakes are in­deed high for the com­mis­sion, which has al­ready been widely blamed, al­beit un­fairly, for the fail­ure to lift the pro­longed mar­ket gloom. It is ex­pected to pull out all the stops in its in­ves­ti­ga­tion of the Ever­bright af­fair, so that it is seen to be thor­ough, fair and trans­par­ent.

This is a for­mi­da­ble chal­lenge, given the con­straints to which the agency is sub­ject. Coin­ci­den­tally, Xiao con­trib­uted a signed ar­ti­cle to the au­thor­i­ta­tive Qiushi Jour­nal just a week be­fore the Ever­bright af­fair in which he out­lined some of the spe­cific con­straints that have frus­trated the en­force­ment ef­forts of the agency.

Not only does the agency lack the nec­es­sary power to do its job prop­erly, it seems to be des­per­ately short of funds that would en­able it to ac­quire the tech­nol­ogy able to de­tect and an­a­lyze ir­reg­u­lar mar­ket ac­tiv­i­ties, and to re­cruit enough qual­i­fied pro­fes­sional in­ves­ti­ga­tors to gather the ev­i­dence, track down the cul­prits and pre­pare le­gal cases lead­ing to con­vic­tion. It is has not been un­com­mon for the pow­er­ful in­ter­ests in­volved in ir­reg­u­lar stock mar­ket ac­tiv­i­ties to block the com­mis­sion’s in­ves­ti­ga­tions.

When Xiao made it known ear­lier this week that the com­mis­sion plans to dou­ble its in­ves­tiga­tive team by adding 600 pro­fes­sion­als, the move was hailed by some an­a­lysts and com­men­ta­tors as a brave first step in strength­en­ing the agency’s en­force­ment ef­forts. But there are oth­ers who re­main skep­ti­cal that man­power alone will be enough to erad­i­cate ir­reg­u­lar­i­ties, cit­ing the same rea­sons that Xiao men­tioned in his ar­ti­cle.

The ob­vi­ous next step is to em­power the reg­u­la­tory com­mis­sion with the le­gal au­thor­ity to sub­poena, search and de­tain. What’s more, proper pro­ce­dures have to be es­tab­lished to en­able the com­mis­sion’s in­ves­ti­ga­tors to call on the as­sis­tance of the po­lice in case of re­sis­tance to co­op­er­ate with their in­ves­ti­ga­tions, a not un­com­mon oc­cur­rence, ac­cord­ing to Xiao.

Of course, there will need to be fur­ther steps that may in­volve re­form of the un­der­ly­ing pol­icy and ap­proach. But let’s take it one step at a time.

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