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Market boss out to shake the trees

PUBLISHED : Wednesday, 28 March, 2012, 12:00am
UPDATED : Wednesday, 28 March, 2012, 12:00am

When Guo Shuqing was appointed chairman of the China Securities Regulatory Commission (CSRC) late last year, the mainland's stock markets took it as a piece of good news. Some investors thought Guo's predecessor, Shang Fulin, had been in the position for too long and it was time for change.


In Chinese, Guo's given name, Shuqing, literally means 'clean tree', while Shang's full name was often the source of jokes by those who lost money in the Shanghai stock market, one of the world's worst performers last year. Its pronunciation is similar in meaning to 'the chance for increase is zero'.


Since Guo, 55, took charge of the CSRC in October, he has rolled out a series of ideas and plans to reform the stock markets in discussions with market participants as well as in public forums. Some of his ideas have surprised investors. For example, he broached the issue of whether the regulator should give up its power to approve initial public offerings of shares to make listing procedures on the mainland more market-oriented - and less susceptible to corruption.


'If you think of China's stock market currently as a messy overgrown tree, then Guo's job, most urgently, is to prune that messy tree first,' said an asset manager at an international firm in Shanghai who asked not to be identified.


Guo's main game is to restore confidence among individual investors, who drive 90 per cent of daily trading volume on mainland stock markets. Among a number of remedies Guo suggests is for listed companies to increase their cash dividend payouts to shareholders and for local government pension funds to be allowed to directly invest in equities. But of all the reform measures Guo has so far backed, industry executives and analysts say his top priority appears to be a crackdown on market manipulation and insider trading, seen by many investors as rampant on the mainland, especially in speculative small cap stocks.


In his zeal to lay the groundwork for more buoyant markets, he went so far as to say at a forum that he believed investors in Chinese blue chips would reap an 8 per cent annualised return, sounding more like a cheerleader than a regulator. But stock market watchers interpreted Guo's remarks as a signal that the top securities watchdog was trying to steer investors toward blue-chip stocks such as big banks and large resources companies -whose size makes them less susceptible to insider trading - and to urge market players to take a longer-term view of their investments rather than regard them as speculation.


According to people familiar with Guo's thinking, Shanghai's ambitious plan to launch an international board for foreign companies such as HSBC has been put on hold partly because the new CSRC boss first wants to get the domestic stock markets on a more solid footing.


Wu Jinglian, an economist and influential government adviser, concurs with Guo's strategy that the markets have to be cleaned up before they can function properly. Wu, a former adviser to late paramount leader Deng Xiaoping and to former president Jiang Zemin, said the lack of transparency in mainland markets would be the greatest challenge facing the new regulator.


'When you play cards, you should not know what cards are in your rival's hand,' Wu told the South China Morning Post in a recent interview, referring to investors who trade on inside knowledge. He described the mainland's stock markets as casinos, where sometimes investing could be worse than gambling due to the lack of protection for all parties.


In January, two months into his new job, Guo held an internal meeting where he likened insider trading to robbery and said under his leadership the CSRC would have zero tolerance for insider-trading cases, according to official media reports.


But some analysts are concerned that Guo's crusade against insider trading risks sparking a political struggle that will slow the pace of his stock market reforms. In the past, many politically connected mainland tycoons and local government officials have colluded to trade on insider information, particularly yet-to-be-announced mergers and acquisitions of state-owned enterprises. For example, in 2003, Shanghai property tycoon Zhou Zhengyi (known as Chau Ching-ngai in Hong Kong ) was arrested for commercial crimes, including stock market manipulation. Later, Zhou, at one time ranked by Forbes magazine as one of the richest men on the mainland, was linked to disgraced top Shanghai Communist Party official Chen Liangyu, who was jailed for siphoning money from the city's social security fund to his associates.


And in 2008, Wong Kwong-yu (also called Huang Guangyu), founder and former owner of Gome Electrical Appliances Holdings, China's top home appliance retailer, was arrested on charges of stock market manipulation. The case of Wong, one of the richest men on the mainland, proved the downfall of a number of senior officials at China's commerce ministry, public security and tax departments, all of whom had helped Wong build his business.


When those major insider-trading cases hit the headlines, stock market sentiment suddenly shifted, sending markets into the doldrums because investors feared speculators might be spooked into pulling their money out of the markets.


Wu suggested that Guo, who was a policy adviser on economic reforms to Zhu Rongji when he was premier, should proceed cautiously with his overhaul plans. 'His direction looks right, but he has to be very cautious because it is a very complicated market and such reforms [could affect the benefits special interest groups now enjoy],' said Wu.


Guo, a former foreign-exchange regulator and state bank chairman, is mindful of the vagaries of the mainland's stock markets. During the National People's Congress session in Beijing this month, Guo almost stumbled down steps while being pursued by reporters outside the Great Hall of the People where the meetings were held. Guo regained his balance, then laughingly told the media pack: 'I cannot fall, otherwise some people may think the stock market will also fall.'


Additional reporting by Daniel Ren in Shanghai and Lulu Chen


60%


The percentage decrease in the Shanghai Stock Exchange Composite Index since October 8, 2007


Hitting the ground running


November 10


Urged listed companies to pay out more cash dividends


December


Approved 14 foreign funds during the month


December 17


Suggested local government pension funds be allowed to invest in stocks


December 25


Reaffirmed the regulator's determination to weed out market irregularities


January 9


Urged investment banks and companies to set IPO prices at reasonable levels


February 1


Released about 500 IPO-ready company names to increase transparency of the IPO approval process


February 15


Personally estimated blue-chip stocks would bring investors an 8 per cent annualised return


Source: Public speeches and statements; SCMP Research


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