The Chinese State Circus

Traders and investors might have given an initial thumbs up to the new head of the China Security Regulatory Commission.

But lets face it, there is much work to be done.

The CSRC appointed Liu Shiyu – a former investment banker – as the new chief after billions of yuan were wiped off the two main exchanges after the introduction of new circuit breaker rules at the start of the year.

Xiao Gang was always likely to go after this circus. Let’s not forget that he had held the post for three years and, during that time, had witnessed a handful of other market sideshows.

Perhaps Liu Shiyu will be the man the restore confidence? He was previously second-in-command at the People’s Bank of China and a senior figure at China Construction Bank. But, ultimately, the 54 year old has a tough job and is going to need all of his experience.

While the circuit breaker incident may be over, investor confidence has taken a battering since, not just because of the failure in Chinese regulatory policy but also because of the government intervention that followed.

Not only was it embarrassing for the Chinese, is also highlighted the fragility of the Chinese stock market.

It still needs considerable development from an institutional investment standpoint, while the Chinese government expects the CSRC to do more to attract money to small caps.

This is a tricky task in a financial ecosystem that is speckled with government influence and state meddling.

Worse still, global economists are consistent in their immediate outlook for the Chinese economy.

Growth is slowing and observers say the recent wild swings in the Chinese stock market show that it is not entirely grounded in the real world.

While macro-economic activity will take its semi-natural course (let’s save the predictions for the economists and the PMs flogging funds), there is one thing that the Chinese can take from recent events. And perhaps a lesson for regulators the world over…

Regulatory concepts need discussion with all parties before implementation. While Xiao Gang may have been the one to fall on his sword, there were plenty others who were injured parties.

• This piece is taken from the Spring 2015 edition of The Trade Asia