China: Building a More Stable Equity Market

Published on March 22, 2016

When Liu Shiyu was appointed Chairman of the China Securities Regulatory Commission (CSRC) in late February to replace Xiao Gang, who was pushed out after an ill-fated experiment with circuit breakers, the new regulator promised to do his best to keep China’s stock markets relatively stable.

Liu, characterized by former colleagues from his ten years at the People’s Bank of China as a gradualist pragmatic reformer, furthermore vowed to identify signs of problems in the equity markets before they occurred, and to take preventive measures against a market slump.

*** Liu believes the new proposed IPO registration system could potentially cause major stock market fluctuations, given the existing market sentiment and the CSRC’s current regulatory and supervisory capacities. Premier Li Keqiang and Vice Premier Ma Kai have both agreed with Liu that the CSRC should not replace the current approval-based mechanism for an IPO registration-based system in 2016, but from what we understand still plan to launch it in 2017. ***

*** In the wake of several successful tests since last year of the link between the Hong Kong SEHK and Shenzen SZSE stock exchanges, Liu also intends to launch the delayed Hong Kong and Shenzhen “stock connect” in 2016, most probably in the August-November period. Liu hopes the launch of the Hong Kong and Shenzhen stock connect will help boost market sentiment and build his reputation for pragmatic reform. ***

*** The CSRC and British securities watchdogs will also speed up their study of the feasibility of a proposed program to link the Shanghai and London Stock markets to the second half of this year. The Shanghai-London Stock Connect is expected to allow investors to trade Chinese shares listed in Shanghai as well as British shares listed in London. Liu expects the Shanghai and London stock connect to be implemented by late 2017 or early 2018. ***

The Chinese market regulator hopes and expects China’s stock market will enter a “slow bull” phase during his term. Officials would indeed be very pleased if the market, well off its lows but still down 15% on the year, were to go up by 5-10% for 2016.

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