CSRC replaces head amid China market turmoil

Xiao Gang has been replaced as chairman of the China Securities Regulatory Commission, with his successor facing a number of thorny issues.
CSRC replaces head amid China market turmoil

The chaiman of China’s securities regulator, Xiao Gang, has stepped down after months of domestic stock-market turbulence, leaving his successor faced with several significant challenges.

The China Securities Regulatory Commission's new head, Liu Shiyu, is a former chairman of Agricultural Bank of China and former deputy governor of the country's central bank. Among other things, he will need to tackle corruption at the CSRC, rebuild the watchdog's credibility and improve communication with the market.

Liu's appointment was reported by state agency Xinhua News on Saturday morning, and has been confirmed by the CSRC. Xiao, 57, had headed the regulator since March 2013 and his term had been due to run until 2018. 

Liu is tha latest in a line of former heads of state-owned banks to take the helm at the CSRC. Xiao was once a chairman of Bank of China and had replaced Guo Shuqing, former head of China Construction Bank. 

There has been speculation that Xiao would be leaving his role since China’s equity market collapse in June. The CSRC had denied a January report by Reuters that Xiao had offered to resign. The story quoted a source saying communist party leaders were not satisfied with Xiao’s performance during the market turmoil and had been sounding out potential replacements.

Meanwhile, the Central Commission for Discipline Inspection (CCDI), the Communist Party’s anti-corruption watchdog, had criticised the CSRC early this month after an investigation. The CCDI said the regulator was weak in its management and execution of internal policies, and lacked a suitable mechanism to prevent conflict of interest and therefore corruption.

Last week prime minister Li Keqiang voiced his concerns about the CSRC’s internal management, speaking at the State Council’s first regulatory meeting after the Chinese New Year. Li credited its policies with stabilising the stock market, but said the CSRC needed to learn lessons, “including the issue of addressing [market] problems effectively, the issue of inadequate actions at a technical level and even the internal management issue”.

The CSRC was embroiled in scandals and scrutinised by the CCDI during last year's market turbulence. Two senior officers – former bond and futures head Yao Gang and former assistant chairman Zhang Yujun – were caught in the government’s corruption probe last November and September, respectively.

The securities regulator’s credibility was also questioned in January after the failed implementation of an index circuit-breaker. After suspending the mechanism, Xiao acknowledged flaws in the regulation of the equity market last year. He said the extreme volatility reflected an “immature equity market and participants, an inadequate trading and market system and an inappropriate regulatory system”.

The CSRC’s market interventions since June did not restore investor confidence, and a shuffling of senior personnel in the past six months has again raised the question of a lack of talent within the agency. Following the appointment of Fang Xinghai and Li Chao as vice chairmen in October and September respectively, all four of the top officials – the chairman and three vice chairmen – are new joiners. The only exception is Jiang Yang, who was appointed vice chairman in September 2012.

Li Jiange, a former vice chairman of the CSRC, said in early January that the agency needed a better mechanism to retain talented financial professionals.

Fang defended the regulator, saying the market environment was complex and the watchdog sometimes did not know how to properly respond to market changes.

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