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Long road ahead for new CSRC head

By Ed Zhang and Chen Jia  (China Daily)

08:42, March 20, 2013

Xiao Gang pledges to continue predecessor's securities reforms

The stock markets in both Shanghai and Shenzhen tumbled on Monday, right after Xiao Gang, former chairman of Bank of China, was appointed to succeed Guo Shuqing as chairman of the China Securities Regulatory Commission.

Tuesday's trading was normal but didn't show much of a gain.

Is the market unhappy with Xiao's appointment? Or does it expect so much from the CSRC as to fear that its new chairman may not be able to deliver so much and so quickly?

The answer cannot be the former.

Premier Li Keqiang would not have chosen a man of only mediocre caliber to fill such an important post just one day after his appointment was approved by the just concluded annual session of the National People's Congress.

For a number of years, Xiao has been considered one of the key players in the nation's financial executive team. Good at team management, relatively young at 54 and also fluent in English, he may have a chance to prove more useful for the country's economic reform and opening up.

Indeed, Xiao should be emboldened by the market's anxiety for change.

Remember that on Oct 29, 2011, one day before Guo assumed office at the CSRC, the Shanghai Composite Index was 2,473.41 points. It was 2,278.40 at the close last Friday, prior to the announcement of Xiao's appointment. During the period, the benchmark index even fell to a three-year low of 1,949.46 on Dec 7, 2012.

But Guo is still remembered by financial market observers as the man who attempted to cure the lingering malaise of the A-share market.

Liu Jipeng, dean of the China University of Political Science and Law's capital research center, even went so far as call Guo "a revolutionary from within" the CSRC.

Unfortunately, the legacy of the incomplete industry reform of the last two decades is so entrenched. Many companies that don't deserve to be listed are already listed on the stock market and have done nothing more than burn investors' money.

At the same time, many other companies - more than 840 so far - that claim to be ready to list cannot be allowed to do so because, first, no one is sure about their managerial quality, and second, if they get listed all at once, they would crush the market.

During his 17-month tenure, Guo made or revised 68 rules, mostly aimed at eliminating securities fraud and market irregularities.

Xiao also pledged that he would carry forward the campaign Guo had started to bring the market to a more acceptably lawful state. Economist Cao Fengqi said, "Now that he said so, let us believe that he will do it."

But Xiao can do more than just amend rules one by one - although this is certainly important work.

With a new cabinet more committed to market-oriented reform, Xiao should prove his effectiveness by doing more, and by making some bigger moves.

Eliminating "batches" of companies guilty of financial fraud and subjecting them and their executives to heavy penalties have been proposed in opinions published recently in the official China Securities Journal.

Amending the existing Securities Law, the basic rules governing China's securities market, can be another good step if it can further specify the terms for legal protection and compensation for investors.

At the same time, considering all of the possible internal and external negative factors, it is indeed technically impossible for the CSRC to open the floodgates, so to speak, for IPOs at any point in the foreseeable future.

While cherry-picking a few good and more highly respected companies for the A-share market, the new chairman may start designing an alternative solution for most of the companies waiting to get listed, either by making more stringent rules or by re-channeling them to a different market sector.

There is no guarantee that any of these reform measures would help lift the stock market to a record high, or to any higher point at all. But if Xiao can deliver, he would be known not only as "a revolutionary from within", but perhaps also a national hero.

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