Daunting task for new head of China securities regulator

Analysts say Mr Liu Shiyu (left), a professional banker, will need to act swiftly to improve the functioning of China's equity markets and wean them off state intervention, without doing more damage to the economy.
Analysts say Mr Liu Shiyu (left), a professional banker, will need to act swiftly to improve the functioning of China's equity markets and wean them off state intervention, without doing more damage to the economy.PHOTO: EUROPEAN PRESSPHOTO AGENCY

HONG KONG • Mr Liu Shiyu, chairman of the Agriculture Bank of China, has been named the new head of the nation's securities regulator.

Analysts say Mr Liu, 54, faces a daunting task.

He will need to follow up with swift action to improve the functioning of China's equity markets and wean them off state intervention, without doing further damage to the economy.

"This will be a positive for the stock market, but the key will be the economic policies issued by the government in the next few months," said Mr Chen Bo, a Beijing-based investor and independent political scholar.

Without them, he said, the "short-term gains in the stock market in the next couple of months could be followed by another serious slump".

Analysts say the dismissal of 58-year-old Xiao Gang as head of the China Securities Regulatory Commission (CSRC) - which came in the form of a terse statement from state media last Saturday - is only a first step to cleaning up the mess in the markets.

The former head of the regulatory body was widely blamed for failing to forecast the mainland's stock market crash last summer, when market capital of more than US$5 trillion (S$7 trillion) evaporated between mid-June and late August last year.

EXPERT IN FINANCE

Liu Shiyu has rich experience in finance, he is an expert. New leadership could take this opportunity to develop the capital markets in a comprehensive way... But the stock market's problems are institutional. You can't expect a major influence from personnel changes alone.

ANALYST YANG MEI

It was, however, the introduction and then swift withdrawal after only four trading days of a circuit-breaker mechanism to halt volatile stock market trading that was probably the straw that broke the camel's back.

Mr Liu, according to London-based Financial Times, is likely to focus on structural changes aimed at developing the stock market as a more viable fund-raising tool for companies, rather than a get-rich-quick scheme for retail punters, analysts say.

"China's capital markets have reached a crucial moment. The basic approach to regulation needs to be reformed," said analyst Yang Mei of Kaiyuan Securities in Xi'an.

"Liu Shiyu has rich experience in finance, he is an expert. New leadership could take this opportunity to develop the capital markets in a comprehensive way... But the stock market's problems are institutional. You can't expect a major influence from personnel changes alone."

It is a tough task, analysts told the Financial Times.

Some powerful factions have a vested interest in the status quo, which creates rent-seeking opportunities for CSRC officials and pre-IPO investors - including politically connected "princelings" - who can help companies to navigate the approval process.

At least three CSRC officials involved in IPO approvals were detained for corruption last year.

Mr Liu is typical for a top financial official. He spent his career working in government committees and at the central bank, but has little experience in equity markets.

Mr Fred Hu, chairman of Primavera Capital Group and former chairman of Goldman Sachs for China, called Mr Liu a "highly experienced and results-oriented financial official", but said that he would "find himself in a challenging position", like his predecessor.

"Over and time again, the regulators have struggled to meet some of the difficult tasks - modernising securities markets, engineering rising equity prices, while protecting investors and ensuring market stability," Mr Hu said in an e-mail.

While Mr Liu has little experience with markets, he does have connections. In the mid-1990s, he worked at the state-owned China Construction Bank. The bank, at the time, was headed by Mr Wang Qishan, who is now overseeing the anti-corruption campaign as one of seven members of the Communist Party's ruling Politburo Standing Committee.

Mr Liu, a professional banker, has also previously worked as a deputy to central bank governor Zhou Xiaochuan, reported the South China Morning Post.

NEW YORK TIMES

A version of this article appeared in the print edition of The Straits Times on February 22, 2016, with the headline 'Daunting task for new head of China securities regulator'. Print Edition | Subscribe