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What's Wrong With China's Stock Market?

China Securities Regulatory Commission Chairman Xiao Gang in Hong Kong in January 2015.
ENLARGE

China Securities Regulatory Commission Chairman Xiao Gang in Hong Kong in January 2015.


Photo:

Reuters

Jan. 17, 2016 5:27 a.m. ET

What’s wrong with China’s stock market?

Just about everything, according to a statement from Xiao Gang, the country’s chief securities regulator, delivered at a national meeting of Chinese securities officials and posted on his agency’s website Saturday.

In the statement, Mr. Xiao defended his handling of successive market meltdowns, blaming the “abnormal volatility” on “an immature market, inexperienced investors, imperfect trading system, flawed market mechanisms and inappropriate supervision systems.”

The turmoil in China’s stock market—which on Friday entered “bear” territory of 20% below its recent peak—has cast a harsh light on the performance of Mr. Xiao, 57, a former central banker and chairman of the Bank of China before he was appointed chairman of the China Securities Regulatory Commission in 2013.

During the summer, when Chinese stocks tumbled more than 40%, Mr. Xiao oversaw a slew of measures to prop up the market that many investors criticized as heavy-handed and interventionist. Those ranged from banning certain kinds of short selling and share sales to approving the purchase of hundreds of billions of yuan in equities by government-affiliated funds.

Two weeks ago, Mr. Xiao was forced to abandon a circuit-breaker mechanism he’d championed as a way to halt big trading swings, when it instead ended up fanning panic selling.

In his Saturday statement, Mr. Xiao defended his efforts, saying they were a successful attempt to stave off a bigger crisis.

“The response to the abnormal volatility in the stock market was essentially crisis management,” Mr. Xiao said. Various departments “addressed market dysfunctions and prevented a potential systemic risk through joint efforts.”

Mr. Xiao did admit there had been “supervision and management loopholes” and he promised to crack down on illegal activities, increase market transparency and better educate investors, although he didn’t outline specific proposals.

He briefly touched on the detention of some top-ranking officials in the securities industry in relation to a police investigation on alleged violation of rules, but without naming his own agency.

Mr. Xiao chastised listed companies for “exaggerated storytelling” to hype up stock prices, and urged market participants to cultivate a stronger sense of social responsibility and to “huddle together for warmth”—or cooperate in the greater interest—when times are bad.

In an example of such huddling, scores of Chinese-listed companies have issued statements during the past few weeks saying their controlling stakeholders won’t unload shares. Some of those companies say privately they released the statements at the request of exchange officials.

Mr. Xiao also warned of “increasing regulatory challenges” ahead from rising uncertainty in external markets, including the global equity-market slump, plummeting commodities prices and currency devaluations in emerging markets.

Many users on Chinese microblog site Weibo were unimpressed.

“How can you call investors immature? Stock investors are all profit-driven,” wrote one user. “Are foreign investors more mature? Are investors who don’t sell when the prices fall and who don’t buy when the prices rise called mature investors?”

“The speech didn’t mention one word of reflection or investigation into who should be held responsible” for wild swings in the market, went another widely circulated remark.

Other commenters criticized Mr. Xiao for not warning investors of the dangers of borrowing heavily to buy stocks—a practice some have blamed for the severity of last year’s equities crash—and for failing to provide effective regulation.

The public has questioned Mr. Xiao’s professional chops before. In a candid interview with Hong Kong’s Phoenix TV in 2012, he admitted to terrible math skills and said “the only thing I did right in my entire life is to marry my wife”—leading to some snarky comments that it was time for Mr. Xiao to resign and attend to domestic affairs.

—Yifan Xie

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What's Wrong With China's Stock Market? Reviewed by on . ENLARGE China Securities Regulatory Commission Chairman Xiao Gang in Hong Kong in January 2015. Photo: Reuters Jan. 17, 2016 5:27 a.m. ET 5 COMMENTS What’s wron ENLARGE China Securities Regulatory Commission Chairman Xiao Gang in Hong Kong in January 2015. Photo: Reuters Jan. 17, 2016 5:27 a.m. ET 5 COMMENTS What’s wron Rating:
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