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Jane Cai

The ideas and capabilities of a new generation of economic policymakers taking centre stage in Beijing will determine whether China moves further towards an open and ordered market economy.
The South China Morning Post today continues a series looking at those likely to shape China’s economic future.

When Liu Shiyu was named head of China’s stock market watchdog a year ago, analysts in Beijing joked that he was taking over “the least wanted job” in town.
After a spectacular rout the previous summer that knocked US$5 trillion off China’s stock market capitalisation, the market was still on its knees. The country’s 100 million retail stock investors were in despair, and the credibility of Beijing’s management of the market and economy was tarnished.


The Shanghai Composite Index, the most commonly used gauge of the Chinese market’s health, hit a high of 5,178 points in June 2015 before plunging by almost half to around 2,700 points by the end of January last year.
China slaps record fine, jail term on hedge fund trader amid crackdown on ‘financial crocs’
Liu has managed to staunch the damage, with the index having risen 19 per cent since he was appointed China Securities Regulatory Commission (CSRC) chairman in February last year, but he has also proven to be more than just a steady hand on the tiller.


He’s taken the public’s breath away several times with strongly worded speeches promising to battle the deeply rooted insider trading that has plagued China’s stock market since its inception in 1990.

Chinese officials are usually dull public speakers and mind their own business but Liu is not averse to using colourful language, calling capital market miscreants everything from new-money barbarians to evil spirits, blood-suckers and crocodiles, and has pointed the finger at insurers, which are not under the CSRC’s supervision, for their aggressive buyouts of listed companies.
At a press conference on Sunday, Liu said: “I was shocked by the chaos that I saw in financial markets after I came into office.
“These so-called barbarians, demons, evil creatures or financial crocodiles have taken advantage of loopholes in the system and grabbed what they want by cheating or force under the cloak of legality at the expense of small investors.


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“We will get even with those financial crocodiles who have hurt small investors.”
Professor Guo Tianyong, from the Central University of Finance and Economics in Beijing, said that rhetoric could be a reflection of Liu’s personal style, but “more likely he’s spreading the word from the top leadership that China is determined to crack down on insider trading in the scandal-stricken stock market”.
With the emphasis on financial security, regulators like Liu are expected to play a bigger role in China’s economic reform, according to Lu Zhengwei, Chief Economist with the Industrial Bank in Shanghai.
Since the second half of last year, the top leadership has been emphasizing the importance of containing financial risk. And President Xi Jinping’s remarks in the latest central financial and economic leading group on Tuesday signals that Xi wants these regulators to have better coordination.
“We can expect a breakthrough in the reform this year”, said Lu.
Guo Shuqing, 61, an experienced financial industry regulator, has been appointed to head the banking watchdog, which oversees an industry haunted by rising bad debts and undisciplined off-balance-sheet financing.
Pan Gongsheng, 54, the head of China’s foreign exchange watchdog, is struggling to curb illicit outflows, shore up the country’s foreign reserves and attract foreign investment.
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A year ago, China Insurance Regulatory Commission chairman Xiang Junbo, 60, was publicly encouraging insurers to buy stocks but he’s now shifted focus to risk management. The insurance regulator last month barred tycoon Yao Zhenhua, who used funds from his insurance business to finance takeover bids for listed companies, from participating in insurance business for 10 years.
Liu will be closely watched by the media at this month’s annual meeting of the National People’s Congress in Beijing because if he gives a press conference on its sidelines it could provide clues about just how far the top leadership’s anti-corruption campaign will extend in financial circles.
“Given the rampant stock-price manipulation and insider trading, the public is also watching if Liu has the guts to push ahead with market reforms and restore investors’ confidence,” Guo said.
With powerful and advantaged groups – brokers, company managers and the vested interests behind business tycoons – benefitting from insider trading, China was often criticised for not being wholehearted about cracking down on the practice until trillions of yuan of state funds were at risk following attempts to bolster the market following the mid-2015 rout.

Several CSRC officials and senior managers at CITIC Securities have been punished and Xu Xiang, a well-connected fund manager in Shanghai, was fined a record 11 billion yuan in January for financial misdemeanours. He was also jailed for five and a half years and 9.3 billion yuan of “ill-gotten” assets amassed by Xu and two associates was confiscated by the state. At the end of January, tycoon Xiao Jianhua, who is said to be connected to influential figures, was taken from Hong Kong to the mainland on the eve of the Lunar New Year to help with investigations into alleged market manipulation.
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President Xi Jinping told a Communist Party Central Committee graft-fighting workshop on February 13 that those in power needed to guard against the influence of interest groups. He said leading cadres must practise strict self-discipline and “eliminate special privileges”, Xinhua reported.
Three days earlier, Liu told an annual CSRC work meeting that China would 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 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”.
Andrew Collier, managing director of Oriental Capital Research, said Liu’s language was “unusually strong” for a CSRC head.

“However, words are not enough,” he said. “At some point, the CSRC has to improve transparency and regulation rather than simply chase individuals who break the law.”
The CSRC handled 182 cases of information disclosure violation, insider trading and market manipulation last year. The number of cases concerning information disclosure by intermediaries rose 67 per cent year on year to 25, while the number of cases of stock transactions based on non-public information rose 87 per cent to 28.
Professor Zhao Xijun, deputy director of Renmin University’s Finance and Securities Institute, said Liu, who spent most of his career as a central banker, understood the damage capital market dysfunction could cause to the real economy when companies raised money in the financial markets and then invested it in the stock market to make speculative gains instead of investing in equipment or plants for production.
After the fall: CSRC chief Liu Shiyu faces uphill battle to reform China’s stock markets
“The situation is getting worse and is stopping the liquidity created by central bank from flowing to the real economy,” Zhao said. “Liu must share the deep concerns of central bankers.”
Liu, born into a farming family in Jiangsu province, was adept at balancing the interests of various parties, two former colleagues said.
He was a rising star at Tsinghua University, where he majored in hydraulic engineering in the 1980s, and was eager to join the Communist Party. In 1981, he was among the first students to attend a summer vacation session where potential party members could study “basic knowledge of the party”, former Tsinghua tutor Wang Fengsheng wrote in a book about the university.
After graduation, the 23-year-old Liu pursued a master’s degree at Tsinghua’s School of Economics and Management, becoming a student of then dean Zhu Rongji, who went on to become China’s premier in 1998.

In 1987, Liu started his career in Shanghai’s economic restructuring office, the heart of China’s reform and opening-up drive and cradle of China’s reformists. He participated in the design of housing reform initiated by Zhu, who became Shanghai mayor in 1988, and was also there when late paramount leader Deng Xiaoping visited Shanghai in 1991 and made key remarks about the importance of financial opening up in the city’s Pudong area.
In 1991, after Zhu was appointed vice-premier, Liu was transferred to Beijing. He had a stint at China Construction Bank when the current head of the party’s anti-graft watchdog, Wang Qishan, was president of the lender and then joined the People’s Bank of China, the country’s central bank, in 1996.
China’s new securities chief Liu Shiyu is a natural choice for the job, say analysts
He rose from bank inspector, to administration office director and then vice-governor during his 18 years with the central back and was described by colleagues as a “pragmatic and diligent” person who ably implemented the policies of governor Zhou Xiaochuan designed to help state lenders clean up bad debts, reform and restructure.
Before becoming CSRC chairman, Liu spent around 17 months as chairman of Agricultural Bank of China, one of China’s “big four” state-controlled lenders.
Liu has hinted that reform of China’s approval-based listing process, a hotbed for rent-seeking, is not dead. However, it would not replaced by a Western-style registration system, he said, but one with “Chinese characteristics” where administrative approval still played a role.
Funds raised by mainland initial public offerings and the cash part of refinancing of listed companies totalled 1.33 trillion yuan last year, up 59 per cent on 2015, with the CSRC saying on its website it “actively increased market supply” to serve the financing needs of the real economy.


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(161205) -- SHENZHEN, Dec. 5, 2016 (Xinhua) -- Liu Shiyu, chairman of the China Securities Regulatory Commission, addresses a launching ceremony of the Shenzhen-Hong Kong Stock Connect in Shenzhen, south China's Guangdong Province, Dec. 5, 2016. The Shenzhen-Hong Kong Stock Connect, the second link between bourses in the Chinese mainland and Hong Kong, made a debut on Monday. (Xinhua) (wx)

epa05767934 Chinese investors take a nap beside a large screen showing share prices at a securities brokerage house during the first trading day of the Chinese stock market after Chinese Spring Festival holidays, in Beijing, China, 03 February 2017. The benchmark Shanghai Composite Index fell 0.6 percent at 3140.17 points and the Shenzhen index fell 0.47 percent at 10,004.8 points. EPA/WU HONG

An advertising board (L) showing a Chinese stone lion is pictured near an entrance to the headquarters (R) of China Securities Regulatory Commission (CSRC), in Beijing, China, September 7, 2015. REUTERS/Jason Lee/File Photo

epa05171535 A picture made available 20 February 2016 shows Liu Shiyu, then vice governor of People's Bank of China, at a presser in Beijing, China, 13 March 2013. The chief of China's top securities regulator has been ousted amid growing criticism of the agency's actions during months of volatility in the country's main stock markets. Xiao Gang, 57, chairman of the China Securities Regulatory Commission since March 2013, was removed from his post as well as that of Communist Party leader of the commission, the official Xinhua news agency reported Saturday. Liu Shiyu, chairman of the Agriculture Bank of China, was appointed to replace Xiao as chairman and commission party leader, Xinhua cited the Communist Party Central Committee and State Council as saying. EPA/JOY CHINA OUT

CSRC chairman Liu Shiyu greets the press at the National People’s Congress media centre in Beijing in March last year. Photo:

Why is Beijing declaring war on stock market ‘crocodiles’ now?

Authorities are worried about tycoons pulling strings behind the scenes

This handout photo taken on April 21, 2016 and provided by the Chinese University of Hong Kong (CUHK) on February 2, 2017 shows Chinese billionaire Xiao Jianhua, founder of Beijing-based Tomorrow Group, attending a robotics symposium at the Chinese University of Hong Kong. Xiao, who went missing from Hong Kong on January 27 and is believed to have been abducted by mainland security agents, is reportedly under investigation in connection with China's 2015 stocks crash. / AFP PHOTO / The Chinese University of Hong Kong / Handout / -----EDITORS NOTE --- RESTRICTED TO EDITORIAL USE - MANDATORY CREDIT "AFP PHOTO / The Chinese University of Hong Kong (CUHK)" - NO MARKETING - NO ADVERTISING CAMPAIGNS - DISTRIBUTED AS A SERVICE TO CLIENTS - NO ARCHIVES

Laura Cha Shih May-lung, Chairman of Hong Kong’s Financial Services Department Council, speaks during an interview with Hong Kong media in Beijing. 11MAR16 === Photo by Simon Song ===

Mr. Xiang Junbo, Chairman of the China Insurance Regulatory Commission talks about strengthening insurance regulation and insurance industry serving real economy at a press conference at the State Information Office in Beijing on Feb. 22, 2017. 22FEB17 SCMP / Simon Song

The "Tomorrow Group" building is seen in Beijing on February 1, 2017. A Chinese billionaire has been abducted in Hong Kong by mainland agents, according to reports on January 31, triggering more concerns over security in the city after the disappearance of five booksellers. Financier Xiao Jianhua, founder of Beijing-based Tomorrow Group, was staying long-term at Hong Kong's luxury Four Seasons hotel, according to reports in overseas Chinese-language media. / AFP PHOTO / Fred DUFOUR

epa05767929 Chinese investors play cards beside a large screen showing share prices at a securities brokerage house during the first trading day of the Chinese stock market after Chinese Spring Festival holidays, in Beijing, China, 03 February 2017. The benchmark Shanghai Composite Index fell 0.6 percent at 3140.17 points and the Shenzhen index fell 0.47 percent at 10,004.8 points. EPA/WU HONG

Chinese actress Zhao Wei holding the best actress award poses at the 34rd Hong Kong Film Awards in Hong Kong on April 19, 2015. The annual awards are the Hong Kong equivalent to the Oscars and the British BAFTAS. AFP PHOTO / Philippe Lopez

China Securities Regulatory Commission chairman Liu Shiyu said at a press conference in Beijing on Sunday that “barbarians, monsters, and big crocodiles” were damaging the interests of small shareholders. Photo: Simon Song

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