The job of running China’s securities watchdog is known by the country’s media as “the volcano seat” for its potential to blow formerly glittering careers to smithereens. Xiao Gang is its latest victim. The chairman of China’s Securities Regulatory Commission has taken the blame for his fumbling efforts to prop up stocks. But as long as China’s leaders remain reluctant to realise their pledge to give market forces a greater role, the job will remain thankless.
Xiao was the obvious scapegoat for last year’s spectactular boom in Chinese stocks and their subsequent bust. The benchmark CSI300 index more than doubled between November 2014 and early June 2015, and then plummeted. Though stocks have recovered some ground they remain more than 40 percent below their peak.
Xiao and his fellow watchdogs share the blame for failing to rein in the boom, and for their bungled efforts to prop up the market when it fell. In particular, the CSRC chief championed China’s flawed “circuit-breaker mechanism” which exacerbated the selloff in early January and was swiftly scrapped. But in the Chinese system securities regulators are beholden to more senior and less technocratic communist leaders. New chairman Liu Shiyu is unlikely to enjoy any more independence.
Liu, a former central bank official who was most recently chairman of Agricultural Bank of China, now sits atop the molten lava of China’s stock markets. His tasks include corralling the tens of millions of flighty retail investors and policing fraud and market manipulation at listed companies.
Orders to make bourses defy the laws of financial gravity will make his job harder. China is preparing a new system that will allow companies to launch an initial public offering without waiting for the CSRC’s green light. Meanwhile, managers at state-owned firms which agreed not to sell shares in an effort to prop up markets last summer will also want to be released from their restrictions. Though healthy, both these moves could put further pressure on share prices.
Liu has little obvious experience of navigating such market forces. Indeed, analysts regard Agricultural Bank of China as having the worst risk management of the country’s big four banks. His turn in the volcano seat is unlikely to be any more comfortable than his predecessor’s.