New CSRC chief takes stock of market turmoil, rules out re-launch of circuit breaker

Analysts say that Liu Shiyu faces the same old problems as his ousted predecessor: shattered market confidence and the need for sweeping reforms. Photo: AFP

The new chief of China's securities watchdog on Saturday made a profound retrospection of the stock market meltdown in 2015, which he described as a trouble-making "tank truck", saying that the circuit breaker mechanism, which was introduced in January to control the plunging equities market, is a thankless policy as it actually deepened the market turmoil.

Liu Shiyu, the newly appointed chairman of the China Securities Regulatory Commission (CSRC), made the remarks at a news briefing held on the sidelines of China's annual legislative session on Saturday.

Liu is the successor of Xiao Gang, who was removed from the post in February after last year's stock market crash, which triggered large-scale government interventions including government stock purchases, restrictions on stock sales and a temporary ban on initial public offerings (IPO). From June 15 to July 8 last year, the stock market turmoil brought the Shanghai Composite Index down by 32 percent, which led to the near exhaustion of liquidity and investor panic.

With a quick-witted and humorous speaking style that made the reporters laugh now and then, Liu defended the government's decision to intervene in the stock market as necessary to reduce the systematic financial risks, acknowledging that the stock market turmoil was a result of the bubble burst.

"The unchangeable role of the government is to maintain the legal rights of small and medium investors and the transparency, fairness and justice in the capital market," said Liu, who served as chairman of the Agricultural Bank of China (ABC), one of the four biggest government-controlled banks in the country, before his appointment as CSRC chairman.

At the third plenary session of the 18th Communist Party of China (CPC) Central Committee in 2013, the CPC set the goal of letting the market play a decisive role in resource allocation. It also underscored the necessity of the government better playing its role in resource allocation.

The former ABC head said that the government rescue measures taken to cope with last year's stock market bust were "in line with the goal", but he also voiced concerns over the immature Chinese stock market for its lack of the impeccable trading and monitoring systems.

Not directly criticizing the circuit breaker policy the CSRC scrapped in January after four days as it "deepened turmoil rather than stabilizing the stock market", Liu denied the re-introduction of the mechanism in the stock market for the next few years, citing the fact that China's stock market investors are and will be mainly made up of small and medium investors.

At Saturday's news briefing, Liu also confirmed that China must build a registration-based IPO system as part of its efforts in stock market reforms, but he gave no further details about its timeframe.

Experts said that the registration-based IPO system could bring to an end the government's intervention in pricing, facilitate companies to list faster and help scrutinize the credibility of the information offered by those companies.

However, in the government work report delivered by Premier Li Keqiang at the opening of the National People's Congress on March 5, the registration-based IPO system was not mentioned. According to the draft of the 13th Five-Year Plan (2016-2020), which was also released on March 5, China will create conditions to materialize the registration-based IPO system, which Liu said needs a long process that requires a full set of laws approved by the NPC.

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