Market Insights

China Appoints New Securities Regulator as Markets Flounder

 

China has appointed a new chief for its securities regulator in a bid to boost its struggling stock markets, which have sunk to five-year lows.

The cabinet has sacked Yi Huiman as chairman of the China Securities Regulatory Commission (CSRC). He will be replaced by Wu Qing, the state Xinhua news agency said on Wednesday.

Wu is a veteran securities regulator who had led the Shanghai Stock Exchange and served as a key deputy in Shanghai’s municipal government, Xinhua said.

The move is not a great surprise, given policymakers are battling to stabilise the country’s main stock indexes, which have lost $6 trillion in value over the past three years.

 

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Yi’s removal comes as Chinese markets are on a knife edge as institutional and retail investors scramble to cut their losses, with the sputtering economy and a lack of forceful government stimulus measures weighing heavily on confidence.

Numerous market-focused support moves such as restrictions on short-selling or reductions in trading duties have failed to staunch the selloff, as have a number of government statements promising support but lacking details.

“As a knee-jerk reaction, I can see how this would be viewed as positive. But in addressing the well understood issues of the Chinese economy, it doesn’t address anything at all,” said Tim Graf, the head of EMEA macro strategy at State Street.

 

China equities see six straight months of outflows

The FTSE China A50 Index Futures edged up after the announcement, with a gain of 0.2% as of 1027 GMT. Hong Kong’s Hang Seng futures were little changed on Wednesday evening.

Foreign investors sold a net 18.2 billion yuan ($2.5 billion) in Chinese equities last month to notch a sixth straight month of outflows, and the central bank has been persistently supporting the yuan currency.

World stocks went up 20% last year, gold rose 13% and bitcoin 155%. But China’s blue-chip CSI300 index fell 11% and collapsed to a five-year low in recent sessions.

Fresh vows of support by state-linked buyers and a report that President Xi Jinping would meet market regulators drove a sharp rally on Wednesday, but the mood remains fragile and investors sceptical.

Yi, a veteran of the Industrial and Commercial Bank of China – which he joined as a junior loan officer at a branch in Zhejiang in 1985 – was appointed to head the CSRC in January 2019.

Chinese markets have been roiled by near constant turmoil in the five years since then – first by a trade spat with Washington, then by the collapse of developer China Evergrande under debts emblematic of the crisis that has gripped the real estate market in recent years.

A series of regulatory crackdowns on sectors from technology to education has also tested investors’ patience and China’s underwhelming recovery from Covid-19 pushed them to outright flight.

“The selloff is clearly the last straw for Yi – it’s not the first time China fired a CSRC chairman during a market rout. Thus change signals leaders’ willingness to turn the market around,” said Xu Tianchen, senior economist at the Economist Intelligence Unit (EIU).

In 2015, a plunge in China’s stock market and a surprise devaluation of the yuan roiled global markets, and a botched stock market rescue attempt tarnished Beijing’s pledges of reforms and broad policy-making credentials.

 

Securities veteran preferred to banker

In early 2016, China removed Xiao Gang, then head of its securities regulator, appointing a top state banking executive as his replacement, as leaders sought to restore confidence in the economy.

EIU’s Xu said that Wu Qing’s appointment ends the practice where commercial bankers head the CSRC.

“Wu’s previous experience in the securities industry – across regulators and exchanges – will hopefully bring some changes towards ‘leaving it to the professionals,’ Xu said.

Wu also replaced Yi as the Communist Party chief at the regulator, according to Xinhua.

The announcement comes without a common term of “to be appointed to other roles” which usually suggests an outgoing chairman is moving to fill in another position, a former CSRC official said.

 

  • Reuters with additional editing by Jim Pollard

 

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China Told Only Major Intervention Can Turn Economy Around

 

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.

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