January 28, 2019 / 3:20 AM / 9 months ago

Breakingviews - Chinese markets may wait longer for bold changes

Liu Shiyu, Chairman of China Securities Regulatory Commission (CSRC), waves as he arrives at a news conference on the sidelines of the National People's Congress (NPC) in Beijing, China, March 12, 2016. REUTERS/Jason Lee

HONG KONG (Reuters Breakingviews) - China’s stock markets could use a more ambitious overseer. State media reported over the weekend that the head of the country’s securities regulator, Liu Shiyu, would be replaced by Yi Huiman, Industrial and Commercial Bank of China’s chairman. Stability often took precedence over bigger changes under Liu, an approach that achieved only mixed results.

Liu led Agricultural Bank of China before taking over at the China Securities Regulatory Commission in early 2016, after his predecessor botched the introduction of a so-called circuit breaker to limit market turbulence. Perhaps unsurprisingly, Liu came off as mostly risk-averse throughout his tenure.

He did initiate some laudable changes. The CSRC clamped down on bad behavior, levying 10.6 billion yuan ($1.6 billion) of fines last year, more than double the sum from 2016. Liu’s agency also sped up approvals for initial public offerings, reducing the queue to fewer than 300 today from about 900 at its 2016 peak, according to local media. And it curbed trading halts, a bugbear among foreign investors, to reduce the number of suspended stocks from more than half of them at one point in 2015 to just 2 percent today, according to the regulator’s figures.

Bigger ideas proved elusive, though. China is long overdue to switch from its heavy-handed stock-listing approval system to a U.S.-style registration-based one. Such a move would allow companies to more easily tap capital markets and address some of the country’s distortions. Of course, this also would shrink the role of the regulator and lead to unpredictable consequences during the transition. Even a less dramatic initiative, to introduce Chinese Depositary Receipts, misfired. More subtly, Liu sometimes seemed to define reform in a way that would let officials keep their sway.

A more inspired successor would have been Fang Xinghai, the CSRC’s most dynamic and outspoken vice chairman. Instead it will be Yi, someone who rose through the ranks of the conservative state banking bureaucracy. He is well regarded within China’s financial community, but his appointment reveals Beijing’s preference for pragmatism. With Shenzhen and Shanghai stock markets languishing, Yi could be in for a thankless slog.

Breakingviews

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