Balancing act for new securities watchdog chief

Investors are waiting to see whether Mr Liu Shiyu can stabilise China's stock market following last year's turmoil without backtracking on market liberalisation.
Investors are waiting to see whether Mr Liu Shiyu can stabilise China's stock market following last year's turmoil without backtracking on market liberalisation.PHOTO: REUTERS

Mr Liu Shiyu is assuming oversight of the world's second-largest stock market in the wake of a US$5 trillion (S$7 trillion) rout that saw his predecessor criticised for mismanagement.

As well as needing to rebuild morale among the nation's 99 million investors, Mr Liu, the new China Securities Regulatory Commission (CSRC) chairman, will preside over an overhaul of initial public offerings, the planned expansion of a trading link with Hong Kong and a campaign to get the nation's shares included in MSCI's global indexes.

"China faces a confidence crisis after the recent stock market turmoil, stoked to a large extent by policy flip-flops," said Mr Vasu Menon, Singapore-based vice-president for wealth management research at Oversea-Chinese Banking Corp.

"International investors will wait to see if he can deliver fresh policies to stabilise the stock market with a steady hand without backtracking on market liberalisation."

Mr Liu takes over at the securities watchdog from Mr Xiao Gang, who was removed from his post on Saturday after less than three years.

Under Mr Xiao, looser controls over leverage helped triple the value of Chinese equities to US$10 trillion before share prices collapsed last summer.

The plunge reverberated across global financial markets and triggered unprecedented state intervention as Beijing sought to prevent the turmoil from spreading to an economy already growing at its slowest pace in 25 years.

Mr Liu was previously chairman of the Agricultural Bank of China, the nation's third-largest lender, and was a deputy governor at the People's Bank of China (PBOC) before that. Before joining the PBOC, he worked at the China Construction Bank and the nation's economic reform commission.

He holds a master's degree from the economic management school of Tsinghua University in Beijing.

Mr Liu has played a significant role in developing China's bond market and should be a better steward of the securities industry than Mr Xiao, according to Mr Xia Chun, a senior finance lecturer at the University of Hong Kong.

Both men are seen as quite conservative towards new developments in financial markets, he said.

"The situation is not very stable," said Mr Linus Yip, a Hong Kong-based strategist at First Shanghai Securities. "The CSRC must regulate without overly protecting the market."

One of Mr Liu's key tasks will be to oversee the introduction of a more market-based registration system for initial public offerings. The new regime will leave the questions of IPO supply and timing to companies and the market and give firms more power to determine pricing.

Investors are still awaiting an exchange link between Hong Kong and Shenzhen, modelled on the Shanghai one that began in November 2014.

Mr Xiao last month acknowledged mistakes after a review of last year's turmoil. An immature bourse and participants, incomplete trading rules, an inadequate market system and an inappropriate regulatory system were to blame and regulators will learn from the experience, he said.

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A version of this article appeared in the print edition of The Straits Times on February 23, 2016, with the headline 'Balancing act for new securities watchdog chief'. Print Edition | Subscribe