China Stock Turmoil 2015

China’s former top securities regulator says shifting regulation has undermined investor security

PUBLISHED : Tuesday, 05 July, 2016, 12:33pm
UPDATED : Tuesday, 05 July, 2016, 10:58pm

The sharp decline in investment by private companies since early this year can be traced to insecurity about the regulatory outlook, as the negative impact from the stock rout last summer has yet to subside,,Li Jiange, China’s former top securities regulator in Hong Kong said Tuesday.

Statistics show that investment from the private sector has declined to a historical low in recent months, undermining what’s been an important growth engine for China over the last few decades.

“Investors are reluctant to put in their money and support the direct financing of private companies...because they are not sure about the stability of the rules,” said Li, former vice chairman of the China Securities Regulatory Commission, who acts as vice-chairman of Central Huijin Investment, a unit of China’s sovereign fund.

“The securities regulator made some mistakes last year when saving the market, due to lack of experience. And the back and forth changes in rules have left investors puzzled. People are still observing,” he added.

Although the People’s Bank of China (PBOC) had injected an unprecedented amount of liquidity into the economy in the first quarter, economic data in June implies that the rebound since March may have peaked out.

Private-sector investment for January to April grew 5.2 per cent, its weakest pace since the National Bureau of Statistics (NBS) started recording the data in 2012. More worrying, private-sector investment is decelerating sharply from rates near 25 per cent in 2013, to just 10 per cent last year and now just over 5 per cent.

Wu Xiaoling, a former vice president of the PBOC, said “monetary policy cannot not solve all the problems”, and the Chinese authorities have to push forward with structural reform for better allocation of funds.

“The key to the solution is to force out companies with low efficiency, while supporting companies and individuals with innovation and entrepreneurship,” she said.

To facilitate the mission, Wu suggests improving the social welfare system.

“Some scholars, including me, suggest that state-owned enterprises transfer part of their stake to pension fund operators ... to support resettlement capital for workers during the reform,” she said.