(Bloomberg) — Staffers at China’s fundamental securities regulator had been working across the clock for weeks on ways to prop up the nation’s tumbling stock market when the bombshell dropped.
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Late Wednesday, the official Xinhua News Agency reported that their boss Yi Huiman had been ousted, becoming the largest Communist Party casualty of a $5 trillion selloff that’s undermining confidence in the delicate economy.
The announcement sent shockwaves across the industry and throughout the China Securities Regulatory Commission, in response to people accustomed to the matter, who asked to not be identified discussing private information. Prior to the Xinhua news, there had been no internal announcement from the Communist Party’s organization department, which generally shares key personnel changes internally before they go public, the people said.
The departure of Yi, a surprise to even high-ranking CSRC officials, underscores the growing sense of alarm inside President Xi Jinping’s government over the speed and scope of the market meltdown that’s now entering its fourth yr. Wu Qing, an in depth ally of Premier Li Qiang, is taking on as chairman of the regulator.
The CSRC didn’t immediately reply to a request for comment.
China watchers say the move may signal additional measures to revive the world’s second-largest stock market. An earlier flurry of support throughout the runup to the Lunar Latest Yr holiday, when exchanges are closed for six days starting Friday, had didn’t restore investor confidence.
“That’s long overdue in my opinion, if one chief cannot do the job, then possibly we should in any respect times give one other person a probability,” said Jiang Liangqing, managing director at Zhuhai Greenbamboo Private Fund Management. “On the minimum, a recent broom sweeps clean and he may thoroughly be more daring in taking motion as a substitute of just words.”
Anticipation of more fulsome efforts to finish the rout had been mounting for days, after Bloomberg News reported that regulators led by the CSRC planned to transient President Xi on the markets as soon as Tuesday. There’s been no public disclosure yet on whether Xi had that briefing. It was not known what role Yi had, if any, in that planned briefing.
China’s latest measures, including curbs on short-selling and purchases by state-owned entities, had some effect this week because the basic equity gauge jumped three straight sessions to pare declines for the yr. China’s “national team” bought about 70 billion yuan ($9.7 billion) in shares over the past month, Goldman Sachs Group Inc. estimated in a report Monday. A minimum of 200 billion yuan is required to stabilize the market, in response to the US bank.
“Government buying might help circuit-break the downward spiral, but we predict reforms, policy consistency, and plans to handle structural macro headwinds are required to re-rate China equity,” the Goldman analysts wrote.
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If history is any guide, more gains could also be afoot. The past two sackings of CSRC chiefs heralded prolonged equity rallies. The benchmark CSI 300 Index rose greater than 40% in almost a two-year span after Liu Shiyu replaced Xiao Gang in 2016. The gauge jumped greater than 80% over two years after Liu was ousted for Yi in 2019.
Major market interventions in China have rarely been smooth, nevertheless. And the country’s economy is facing greater challenges than during previous market slumps: The property crisis shows no sign of ending, geopolitical tensions with the US proceed to simmer and foreign investors are wary of a government that has clamped down on private enterprise.
What’s more, the CSRC is constrained by what it’s going to possibly do to indicate markets around, notes 22V Research analyst Michael Hirson. It may’t command an intervention by the “national team” or launch some style of stabilization fund, and might do little by itself to drive economic growth.
“Changing the chairmanship on the CSRC alone doesn’t change anything fundamentally,” said Yan Wang, chief China strategist at Alpine Macro in Montreal. “The stock market performance is a mirrored image of weak growth and poor confidence. Unless Beijing addresses these issues, the stock market will likely proceed to struggle.”
The tall task now rests with Wu, 58, who had been tipped last yr to take over the CSRC before he was promoted to deputy party secretary for Shanghai. Before that, he worked closely with Premier Li — President’s Xi’s top deputy — who was previously party secretary throughout the nation’s financial capital.
Read more: ‘Broker Butcher’ Set to Be China’s Top Securities Regulator
Wu is well connected in China’s halls of power. He earlier headed the Shanghai Stock Exchange for nearly two years and held various roles on the CSRC, earning him the nickname “broker butcher” after shuttering 31 firms over regulation breaches. He then oversaw the fund industry until 2010.
Wu also worked on the national planning committee, which later morphed into the National Development and Reform Commission. Wu, who holds a PhD in economics from the Renmin University of China, is usually generally referred to as a low-key technocrat who has zero tolerance for wrongdoing, an individual accustomed to him has said. Wu sometimes jokes he’s healthier to be a surgeon, the person said.
“Wu’s background in financial regulation suggests he might do a greater job in cracking down on malicious short selling and illicit behaviors in the marketplace,” said Sun Jianbo, president of China Vision Capital. “While that’ll soothe investor nerves throughout the short term by cultivating a more favorable environment, it requires more policy efforts.”
–With assistance from April Ma, John Cheng and Jacob Gu.
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