On Monday two weeks ago, intense speculation raged on the grapevine of the mainland's stock markets: Fan Fuchun , a vice-chairman of the China Securities Regulatory Commission, had been detained for corruption. Thanks to the power of the internet and text messages, speculation ran so widely and so fast that many commission officials reportedly received messages from friends as far as the United States inquiring about Mr Fan's situation. The speculation died down over the following days after messages stated that Mr Fan was spotted in the commission's office building. The regulator also posted a news release on its website the following Wednesday, including a summary of Mr Fan's remarks on the previous Friday and a photo of him. The irony is that the speculation started and spread like wildfire simply because Mr Fan was unreachable over the weekend after giving a speech at a seminar in Shanghai the previous Friday. The intensity and the speed at which the false speculation spread are thought-provoking. Although Mr Fan was an innocent victim, the fact that experienced investment bankers and market players are so ready and, some might say, so eager to accept the speculation says a lot about the public perception of commission officials, and their power and influence over the roller-coaster stock markets. Amid rampant insider dealing and profiting by powerful interest groups from initial public offerings, there has been mounting public anger at the regulator's efforts to micromanage and failure to allow market forces to play a bigger role. Compared with its overseas counterparts, the commission wields considerably more power over every aspect of the mainland's stock markets, from preparing firms for IPOs, the approval process and IPO pricing, to the regulation of secondary-market trading. Critics argue that many commission practices are not in line with international ones, a situation that can give rise to corrupt practices such as insider trading. For instance, it has a final say over price-setting of IPOs instead of allowing the firms and their listing sponsors to make a decision based on investor demand. The practice has recently earned a stinging rebuke from the World Bank, which criticised Beijing - in effect the commission - for deliberately underpricing domestic stock offerings, saying it had resulted in billions of dollars in lost revenue to state coffers while lining the pockets of insiders and feeding the stock-market frenzy. Critics also say the practice of mandating the companies to go through a three-year period of preparation for listing has created unnecessary burdens and inflated the companies' costs. For example, the Bank of Nanjing, one of the first two city commercial banks recently given approval to issue shares, had to wait more than four years, and spent much time and money dealing with commission inquiries over documentation, making it more costly to list on the domestic markets than overseas. Meanwhile, the regulator appears to have done a poor job in cracking down on insider dealing and other irregularities, a source of major irritation among investors. The Legal Daily reported that employees from the securities regulator, stock exchanges, securities firms and funds have openly flouted the Securities Law by using inside information to speculate in stocks. Since 1998, mainland regulators have adopted a mechanism by which listed companies that have incurred losses two years in a row, or have had unusual financial problems, must be put under the special treatment category known as ST stocks. The intention was to delist the ST stocks if there was no improvement. In fact few ST companies have been delisted. Instead, most have been the darlings of speculators, who use rumours of restructurings and takeovers to move their share prices.
