Wang Qishan

Don't hold your breath on through-train plan

PUBLISHED : Monday, 05 November, 2007, 12:00am
UPDATED : Monday, 05 November, 2007, 12:00am

The indication by Premier Wen Jiabao that the so-called money through-train scheme has been put on hold is no surprise. In fact, he could have sounded the warning last month or even earlier. The whole scheme, which allows mainlanders to invest directly in Hong Kong-listed shares, has been bungled from the beginning.

None of the four conditions he listed - necessary laws and regulations governing the outflow of funds, assessing the impact on the Hong Kong stock market, educating investors on the risks of investing, and seeking the opinions of financial regulators - had been satisfied on August 20 when the State Administration of Foreign Exchange announced the scheme.

The fact that it took so long for Mr Wen to spell out the central government's position not only signals the strong disagreements among the mainland leadership over the scheme, but also highlights the indecision that has characterised his governing for the past five years.

There is little doubt that one of the reasons behind the decision is that mainland authorities are concerned about the asset bubbles already building in Hong Kong.

Many analysts still hold out hope that the scheme will be delayed for just a few months. They may be too optimistic. The Hong Kong stock market has risen more than 40 per cent since the announcement was made, and shares of many Hong Kong-listed mainland firms have more than doubled.

The view from Beijing is that international investors have bid up those share prices and are ready to dump the overpriced stocks in the laps of the less sophisticated mainland investors. All this means that the scheme will be delayed for much longer than just a few months.

Another reason for the delay, though less talked about, is that mainland politics have put Beijing's decision-making largely on hold. Following the Communist Party's 17th congress, which elected a new leadership lineup, the State Council is bracing for a comprehensive reshuffle to be approved at a full plenary session of the National People's Congress in March.

While Mr Wen will continue as premier for five years, three of the four vice-premiers will be replaced. Wu Yi and Zeng Peiyan will step down in March because of age, and executive vice-premier Huang Ju has died.

Li Keqiang , the new Politburo Standing Committee member, is expected to become the new executive vice-premier, and Wang Qishan , currently Beijing's mayor, and Zhang Dejiang , currently Guangdong's party secretary, will become the new vice-premiers.

The focus of the financial community will be on who will be the one in charge of financial affairs in the next five years.

As Mr Huang was in charge of financial policies before he died, the bet is on Mr Li. But there have been concerns over Mr Li's ability to handle the complexity of financial matters, as he has had little experience in this area.

That explains why there have been suggestions in Beijing that Wang Qishan, known as the trouble-shooter, should be taking over the financial portfolio. He has the perfect resume for it. He climbed the ladder of the financial community and was once a deputy governor of the People's Bank of China before becoming the governor of China Construction Bank. He was Beijing's point man to sort out the financial mess in Guangdong in the wake of the Asian financial crisis in the late 1990s.

By contrast, Mr Li has no experience in the high-stakes and high-level decision-making process on the central government level.

But one strong argument is that since Mr Li is slated to become the premier in 2012, he should take charge of financial policies to help prep him for the job.

Sources said the leadership had not made up its mind over the division of labour among the vice-premiers and a decision was unlikely until February.

This means that all major policy decisions, including the through-train scheme, will have to be delayed until the newcomers come on board and find their bearings. That will take us through at least April or May.

In addition, there has also been strong speculation that the heads of the mainland's financial regulators will be reshuffled as well. Most notably, Zhou Xiaochuan , the central bank governor, was expected to be sidelined because of his pro-reform and pro-west mindset.

But the latest rumour is that Mr Zhou is expected to stay in his job. He is one of those mainland officials who are well-liked abroad but remain controversial at home. He is one of the driving forces pushing for further liberalisation of financial controls to encourage capital outflow and allow the yuan to appreciate faster. But for doing that, he has been attacked by the conservatives.

The implications of whether he will stay on could be big, not least because if he leaves, it is likely to trigger a leadership reshuffle at other financial regulators, including the China Securities Regulatory Commission and the China Banking Regulatory Commission. Shang Fulin , head of the CSRC, is seen as a replacement for Mr Zhou.

If Mr Zhou does stay on, the others will probably remain at their current posts. This may not be a bad thing for the new State Council leadership. As the danger of asset bubbles is becoming real on the mainland, keeping Mr Zhou in his job can be reassuring to the financial community at home and abroad.