China re­moves Xiao as CSRC head

The Pak Banker - - MARKETS/SPORTS -

The head of China's se­cu­ri­ties reg­u­la­tor has been re­moved from his post af­ter last year's $5 tril­lion stock-mar­ket bust, an un­prece­dented govern­ment res­cue and a re­newed cri­sis as plung­ing Chi­nese eq­ui­ties last month re­ver­ber­ated around the world.

Xiao Gang, 57, a for­mer head of Bank of China Ltd., had been chair­man of the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion since March 2013. His exit was an­nounced Satur­day by sta­te­owned Xin­hua News Agency, which cited a State Coun­cil state­ment. Xiao's re­place­ment is Liu Shiyu, who pre­vi­ously served as chair­man of Agri­cul­tural Bank of China.

It was on Xiao's watch that unchecked lev­er­age drove a jump in eq­ui­ties from late 2014 be­fore a col­lapse in June last year that trig­gered govern­ment stock pur­chases, re­stric­tions on stake sales and a tem­po­rary ban on ini­tial pub­lic of­fer­ings. In an about-face, the CSRC in Jan­uary scrapped cir­cuit break­ers within four days of their in­tro­duc­tion as they deep­ened tur­moil rather than sta­bi­lized the mar­ket. "Some­body needed to bear re­spon­si­bil­ity af­ter the sus­pen­sion of the cir­cuit-breaker sys­tem," Zheng Chun­ming, a Shang­hai-based an­a­lyst at Cap­i­tal Se­cu­ri­ties Corp., said be­fore the an­nounce­ment. Xiao's exit is to show in­vestors that the govern­ment is con­cerned about their losses, Zheng said.

China's Premier Li Ke­qiang ear­lier this week be­came the the most se­nior of­fi­cial to fault reg­u­la­tors' re­ac­tion to the mar­ket tur­moil, say­ing at a State Coun­cil meet­ing that they didn't re­spond ac­tively to de­clines. Li didn't spec­ify which reg­u­la­tors, and de­fended the de­ci­sion to in­ter­vene in mar­kets as nec­es­sary to head off sys­temic risks, ac­cord­ing to a Bei­jing News re­port car­ried on the govern­ment's web­site.

"The worst thing the CSRC has done is to res- cue the mar­ket at all costs with­out think­ing about the con­se­quences," said Liu Shengjun, deputy di­rec­tor of the CEIBS Lu­ji­azui In­sti­tute of In­ter­na­tional Fi­nance in Shang­hai. "The mar­ket res­cue is the big­gest set­back for China's stock mar­ket in its 25 years of his­tory. The mar­ket sys­tem is mov­ing back­ward."

Dur­ing Xiao's stint at the helm, an­other se­nior CSRC of­fi­cial was one of those caught up in probes across the fi­nance in­dus­try by the Com­mu­nist Party's anti-graft in­ves­ti­ga­tors. Yao Gang, a vice chair­man at the reg­u­la­tor, was tar­geted in Novem­ber for "al­leged se­ri­ous dis­ci­plinary vi­o­la­tions," lan­guage of­ten used for cor­rup­tion probes. No com­ment has been avail­able from Yao. Xiao's pre­de­ces­sors in­clude Zhou Xiaochuan, the cen­tral bank gov­er­nor, Guo Shuqing, the gov­er­nor of Shan­dong prov­ince, and Shang Fulin, chair­man of China Bank­ing Reg­u­la­tory Com­mis­sion.

As a for­mer state bank chair­man, Xiao saw first-hand the roll-out of record amounts of credit, the govern­ment's re­sponse to the global fi­nan­cial cri­sis. Mar­gin lend­ing for stock pur­chases soared in the lead-up to the mar­ket's col­lapse in June last year. As a reg­u­la­tor, Xiao was crit­i­cized for help­ing to talk up the mar­ket as a bub­ble de­vel­oped, say­ing in March last year that China's re­form plans were driv­ing the rally. As early as De­cem­ber 2014, an­a­lysts at Cap­i­tal Eco­nom­ics Ltd. had seen signs of a stocks "ma­nia" de­vel­op­ing.

His de­par­ture comes as China plans a shift in its IPO struc­ture to a reg­is­tra­tion-based sys­tem, loos­en­ing the grip of the CSRC, which has con­trolled the tim­ing and pric­ing of list­ings. His move also comes amid dis­cus­sion of the po­ten­tial for China to re­or­ga­nize its fi­nan­cial reg­u­la­tors. In Novem­ber, Wu Xiaol­ing, a for­mer deputy gov­er­nor of the cen­tral bank, pushed the case for the Peo­ple's Bank of China to be dom­i­nant and urged of­fi­cials across agen­cies to ditch their ter­ri­to­rial ap­proaches.

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