China replaces Xiao as top securities regulator

He has been replaced by Liu Shiyu of Agricultural Bank of China for mishandling the country’s stock markets turmoil.

Agricultural Bank of China head Liu Shiyu has been appointed as the new chairman of the country’s securities watchdog, the official Xinhua News Agency announced on Saturday, replacing the embattled Xiao Gang, who has faced months of criticism for mishandling the country’s stock markets turmoil.

Xiao’s departure, expected by many market insiders and equity analysts, came after Xiao and the China Securities Regulatory Commission (CSRC) had come under fire over last summer’s market turbulence and a bungled government rescue effort.

“His exit isn’t a surprise. The CSRC chairman is a tough and thankless job,” Hong Hao, chief strategist at Bocom International in Hong Kong, told FinanceAsia. “Xiao Gang is a tragic figure. He did want to get things done.”

Chinese media usually describe the position of the CSRC chief as “sitting by a volcano crater” to illustrate the difficulty of leading the agency and overseeing China’s volatile financial markets. It is not independent either, the securities regulator still has to take orders on major issues from central leadership.

Critics blamed Xiao for falling to deflate the growing stock market bubble from late 2014, largely driven by margin finance, and later failed to halt last summer’s market rout, even with help from the so-called “national team” taking extraordinary measures, including a four-month freeze on initial public offerings and pouring trillions of Chinese yuan into the market to prop up stock prices.

He was most recently criticized for introducing the circuit-breaker mechanism at the start of the year. The mechanism, designed to tame market volatility, was terminated four days after implementation as it exacerbated stock sell-offs and triggered the shortest trading session in China’s history.

Xiao, 57, a former head of Bank of China with decades of experience in finance, took the helm of the securities regulator in March 2013. During his three-year tenure Xiao pushed to develop the country’s equity markets and strengthen their fundraising function for Chinese firms burdened by debt.

For instance, he backed the nascent New Third Board to offer an alternative to Chinese small and medium-cap firms to raise capital. Also, in spite of the four-month IPO ban, 220 firms went public on the A-share market in 2015, raising Rmb158 billion ($24 billion), up 136% from one year earlier, according to data from the CSRC.

Under his leadership the agency also began conducting weekly press briefings – generally on Friday afternoons after the markets' close as an effort to address the most concerning issues of the week. The move, implemented way before many ministerial-level government organisations, has brought increased transparency to the country’s markets and the regulator itself.

In addition, Xiao sought to overhaul the current approval-based IPO system, which has been in place for more than two decades and heavily relies on stringent review by the securities watchdog. He’s a proponent of an US-style registration-based mechanism, which CSRC said it expected to be implemented in two years time and would allow the market to play a decisive role in resource allocation. 

Xiao’s successor, Liu Shiyu, three years younger than Xiao, was trained in engineering at the prestigious Tsinghua University, China’s equivalent of MIT, in the 1980s and was more recently the chairman of Agricultural Bank of China, the country's third-largest lender by assets. He spent most of his career at the Chinese central bank, rising through ranks and becoming deputy governor in 2006.

“He is serious, hard working and very good at coordinating conflicting interests of different parties internally and externally,” one person at the People’s Bank of China told FinanceAsia.

During his nearly two decades at the PBoC, Liu served as the bank governor Zhou Xiaochuan’s deputy in reforming China’s big four commercial banks in early 2000s, prior to their listings, as well as boosting the development of China’s inter-bank bond market.

In his new role at the CSRC, Liu’s major tasks includes seeing through the change to the IPO registration system.

“The job is very challenging for anybody, including Liu” said Hong of Bocom International. 

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