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Xiao Jianhua

China’s stock market regulator vows to ‘capture’ more tycoons

Comments by Liu Shiyu, chairman of watchdog, indicate Beijing’s determination to crack down on market manipulators and control political risks in a sensitive year of power transition

PUBLISHED : Friday, 10 February, 2017, 11:29am
UPDATED : Saturday, 11 February, 2017, 12:27am

China will capture a group of tycoons – known as the “big crocodiles” of China’s stock market – and bring them back to the mainland to face justice, the head of its stock market watchdog told an annual work meeting on Friday.

The comments by China Securities Regulatory Commission chairman Liu Shiyu, published by mainland media outlet Caixin, mark the clearest sign from Beijing so farthat last month’s disappearance from Hong Kong of billionaire businessman Xiao Jianhua was linked to a mainland crackdown on market manipulators and moves to tighten political control ahead of a sensitive leadership reshuffle this year.

Sources said that Xiao, who left the Four Seasons Hotel in Hong Kong on the eve of Lunar New Year, was assisting investigations related to China’s stock market rout. He has not been charged with any wrongdoing.

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China would “devise plans to capture a group of capital market crocodiles and bring them back to the mainland”, Caixin quoted Liu as saying.

The capital market “won’t allow big crocodiles to create winds and rains”, he said, and Beijing would not tolerate them “skinning or sucking the blood of retail investors”. He did not name any “crocodiles”.

Larry Hu, China economist at Macquarie Securities in Hong Kong, said Liu was just toeing the Communist Party line to ensure stability ahead of the party’s 19th national congress.

“Stability is the priority for this year ... and the last thing policymakers want to see is a market crash like the one in 2015,” Hu said.

“Liu has been reiterating the need for tighter regulation, as he puts an emphasis on risk control, whereas before the focus used to be on making the market bigger and accelerating its development,” he added.

Liu said China’s capital market was “a socialist one” and he wanted to give it a “clear sky”.

“Basically there are some market manipulators who fled offshore, and [Liu] wants to arrest them,” said Francis Cheung, head of China and Hong Kong strategy at brokerage CLSA. “By going after them, he is actually looking for the people who create volatility. I am not sure whether that’s good or bad though.”

Like the “whales” and “wolves” of Western financial markets, the big crocodiles in China’s stock market are blamed for manipulating prices and distorting market order. China has been looking into possible causes of the stock market rout in 2015, which wiped about US$5 trillion off the value of shares.

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According to an investigative report by the China Business News in 2013, Xiao, the chairman of Tomorrow Group, used complicated and opaque arrangements to control a vast business empire and to shelter the identity of the true owners of assets.

“The Tomorrow Group system controlled by Xiao Jianhua is the most controversial in recent years,” Caixin said in an editorial on Thursday. “It controlled a group of listed companies, local commercial banks, securities brokerages, trust investment companies and insurance firms ... it has developed a massive platform to move funds around and plays a critical role for many projects, but it has remained a regulatory blind spot.”

China’s crocodiles have been getting larger along with the country’s financial sector and licensed financial institutions such as insurers have emerged as big buyers in the stock market.

Xu Xiang, once considered China’s hedge fund guru, was jailed for a five and a half years in January for market manipulation.

Additional reporting by Sidney Leng