Less than 48 hours after his appointment, China’s new chief securities regulator Liu Shiyu already has investors’ hopes for a stock market rally resting on his shoulders. A popular pun online plays on the phonetic similarity between his name and the Chinese phrase “Bull Market Rain”.
Mr Liu took the reins at the China Securities Regulatory Commission (CSRC) on Saturday after Xiao Gang was abruptly dismissed following a rollercoaster year of stock market turmoil and botched efforts to rescue it. The main stock index hit a seven-year high on June 19th but had lost nearly half of its value by late January, erasing almost RMB30 trillion (€4.13 trillion) from the two exchanges.
But Mr Liu, a former central banker, is likely to focus on structural changes aimed at developing the stock market as a more viable fundraising tool for companies, rather than a get-rich-quick scheme for retail punters, analysts say.
Financial expert
“China’s capital markets have reached a crucial moment. The basic approach to regulation needs to be reformed,” said Yang Hai, analyst at Kaiyuan Securities in Xi’an. “Liu Shiyu has rich experience in finance, he’s an expert.”
China’s leadership has stressed it wants the financial system to channel funds to smaller, more innovative companies, aiding the economy’s transition away from smokestack industries.
That requires a bigger role for capital markets in a financial system that still relies overwhelmingly on bank loans to large, state-owned companies concentrated in low-end manufacturing and construction.
To unlock equity fundraising, Mr Liu must pursue a registration-based system for initial public offerings to replace the tightly controlled approval system that for years restricted access to the bourses for cash-starved Chinese companies, analysts say.
Rescue effort
Under Mr Xiao – viewed as the face of the unsuccessful all-hands-on-deck market rescue effort – the CSRC committed to implement the registration system, but details about the extent and timing of deregulation remain fuzzy.
“For the newcomer, the challenge is to roll out the market-based IPO system to let the stock market become an even more efficient financing instrument,” said Hong Hao, head of research at Bocom International.
But it is a tough task, say analysts. 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 navigate the approval process.
At least three CSRC officials involved in IPO approvals were detained for corruption last year.
Mr Liu could unlock fundraising to small firms by loosening listing requirements for the tech-heavy ChiNext board in Shenzhen, say analysts.
– (Copyright The Financial Times Ltd 2016)
