Strong regulation vital for Chinese stock market stability

By Lao Lee Source:Global Times Published: 2017/5/24 23:28:39

Strong regulation vital for stock market stability

Illustration: Peter C. Espina/GT

China's stock market has had a torrid time recently, with the benchmark Shanghai Composite Index falling more than 230 points since early April. This has been met with a torrent of criticism from individual and institutional investors alike.

What made it worse is that China's market stayed in the red for five consecutive weeks in April and May, while at the same time the Dow Jones Industrial Average, NASDAQ and S&P 500 Index kept jumping to new record highs.

However, stock markets worldwide have witnessed ups and downs. Many expect China's market to stabilize as the country's economy continues to show signs of improvement, the central bank pumps more liquidity into the capital market, and regulators try not to go too far in their quest to control debt risks.

Investing in stocks always involves risks. Only a relative handful of stocks tend to outperform others in any normal market. Blaming regulation and supervision for poor market performance is unwarranted, according to most market pundits.

The China Securities Regulatory Commission (CSRC), the stock regulator, has been doing its utmost to resolve the fundamental problems that stand in the way of a healthy and prosperous market.

Ever since their inception, China's two stock markets in Shanghai and Shenzhen have seen wild ups and downs - with the Shanghai index soaring at one point to more than 6,000 points and then falling as low as 1,600 points. Now it is just above 3,000.

Liu Shiyu became chairman of the CSRC in February 2016. A competitive technocrat, Liu injected momentum into the watchdog by intensifying regulation and strengthening supervision.

The CSRC, under Liu, focused its firepower on fixing an incomplete corporate governance structure and intrinsic structural defects in China's stock market. This involved grappling with avaricious market manipulators and all kinds of gimmicks and traps they had put in place. Liu knows that building a solid foundation and appropriate structure is pivotal for the consistent long-term growth of the country's financial market.

The securities watchdog has reinstituted rules on information disclosure, and has toughened penalties for insider trading, stock manipulation and other illicit market behavior.

At a conference in early 2017 attended by provincial-level CSRC organs, stock exchanges and securities trading houses, Liu said that enhanced supervision had begun and would be the guiding theme for 2017. And since then, the vocal CSRC chief has kept on tackling market irregularities.

Liu has condemned aggressive buyouts of listed companies by speculative capital - including some of China's insurance industry giants, whom he described as "evil monsters" and "barbarians" in the market.

On another occasion, he vowed to "capture big crocodiles" in China's stock market, implying that tycoons who wield mammoth capital power to manipulate stock prices will be punished. Earlier this year, hedge fund manager Xu Xiang was sentenced to five and a half years in prison and fined 11 billion yuan ($1.6 billion); and Xian Yan, chairman of P2P Financial Information Service Corp, was fined 3.47 billion yuan and banned for life from trading on the Chinese securities market, for insider trading and manipulation.

"No one should be allowed to create winds and waves in the stock market. The big crocodiles will not be allowed to suck the blood of individual small investors," Liu said earlier this year.

Analysts predict that the CSRC's stringent regulations are good reasons to bank on a rebound some time later this year. The market's gradual shift to value investment could open up more growth opportunities for investors who focus on the long term. It might even be a good move for them to buy into blue chips at a discount now.

The author is an editor with the Global Times.

Newspaper headline: Strong regulation vital for stock market stability

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