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China Not Ready to Ease Market Control

Liu Shiyu is the new chairman of the China Securities Regulatory Commission. He says his organization has no plans to put more market reforms in place after the failure of a circuit breaker system failed in January.
China Not Ready to Ease Market Control
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China will not relax government control over the stock market, said a new securities regulator.

Those controls include how stocks are offered for public sale. Official control over first-time stock offerings, known as initial public offerings (or IPOs) will continue. Government-supported trading will also continue.

Liu Shiyu is the new chairman of the China Securities Regulatory Commission (or CSRC). The CSRC is the government agency in charge of overseeing the country’s stock markets.

Liu said recently that reforms in the IPO system will not take place soon.

“Supporting the reforms will require a process and a period of time, and the reform of (the) registration-based IPO system can’t move ahead on its own,” Liu said.

The reform would force the CSRC to give up vetting the plans of companies seeking to raise funds through IPOs.

The plan would give companies that offer stocks to the public greater independence to set the IPO stock price. The information would be registered with the stock exchange.

Government control over IPO vetting had led to serious corruption.

least three senior regulatory officials are being investigated. They include Yao Gang. He is a CSRC vice chairman at the regulator in charge of IPO issues, who was placed under investigation for serious disciplinary violations.

Two other officials dealing with IPOs, Li Liang, and Li Zhiling, have been detained for the same reason.

Some experts say delays slow market reforms

The decision to delay action by the CSRC will slow market reform. That is what Oliver Rui, a professor of finance and accounting at the China Europe International Business School, says.

“I wish the government could change its mindset on governance and let the stock market run by itself. Frequent intervention from the government does not help,” he said.

The new CSRC chief also said government-run organizations, which support the market during price drops, will continue to operate. There were no plans to stop them from playing their roles, Liu said.

China makes no secret that it directly intervenes in the market to support stock prices if they fall too far.

The government-run China Securities Finance Corporation Limited has played a major part in supporting the market. This was especially true after stock prices on China’s major exchanges sharply dropped in June 2015.

The fund has invested in almost 600 publicly traded companies, according to Bloomberg data.

Last month, an attempt to control market behavior by halting trading when prices fall too far did not work. The CSRC was forced to withdraw its rules. The government responded by replacing the group’s chief, Xiao Gang, with Liu.

At least 700 Chinese companies have planned IPOs, but some of them might be delayed, sources said.

Johnny Fang is an stock expert with Shanghai-based Z-Ben Advisors. He says there has been improvement in the way IPOs have been approved since the beginning of 2016. But, “the regulator still regards market stability as a top priority,” he said.

I'm Mario Ritter.

Saibal Dasgupta reported on this story for Mario Ritter adapted the report for Learning English. Kathleen Struck was the editor.


Words in This Story

vet v. to investigate to see if something or someone should be approved for a position or certification

priority – n. something that is more important than other things