According to the latest report from Bloomberg on Thursday (February 8), staff at China’s major securities regulators have been working around the clock for weeks to study how to boost China’s plummeting stock market. Suddenly, the “bombshell” that the chairman of the China Securities Regulatory Commission was replaced . Yi Huiman became the biggest “victim” of the sell-off in China’s stock market.
The report said that this sudden personnel change surprised insiders and showed that Zhongnanhai was worried about the plummeting stock market.
The news sent shock waves throughout the industry and within the China Securities Regulatory Commission, according to people familiar with the matter who requested anonymity. The person familiar with the matter said the Organization Department of the CPC Central Committee had not issued any internal announcement before the Xinhua News Agency news was released.
Under normal circumstances, the Organization Department of the Central Committee of the Communist Party of China will report important personnel changes internally before they are announced.
Bloomberg reported that Yi Huiman’s ouster came as a surprise even to senior officials at the China Securities Regulatory Commission, underscoring growing concerns within the government of Chinese Communist Party leader Xi Jinping about the speed and scope of the market rout. Wu Qing, a close ally of Li Qiang, took over as chairman of the China Securities Regulatory Commission.
Wu Qing is the first chairman of the China Securities Regulatory Commission who came from the securities regulatory system. Before him, all nine CSRC chairs came from the People’s Bank of China or large state-owned banks. While working in the securities regulatory system, Wu Qing showed a tough style and dealt with many illegal securities companies. He was known as the “broker butcher” in the industry.
Bloomberg reported that Wu Qing took charge of the China Securities Regulatory Commission at this time to send a signal to the market to strengthen financial supervision and maintain market order.
About $5 trillion has been wiped off the value of onshore stocks compared with their peak in 2021, and as China enters the week-long Lunar New Year holiday, the urgency for policymakers to take more action has increased.
The CCP authorities have made preventing major financial risks a top priority, and Wu Qing’s first test will be to revive the Chinese stock market.
China watchers said the move could signal further steps by Beijing to revive the country’s stock market. An earlier series of support measures ahead of the Lunar New Year holiday failed to restore investor confidence.
Goldman Sachs Group estimated in a report on Monday (February 5) that the Chinese Communist Party’s “national team” bought about 70 billion yuan (about 9.7 billion U.S. dollars) of stocks in the past month, but at least 200 billion yuan is needed to Stabilize the market.
“Government purchases could help break the downward spiral, but we believe reform, policy consistency and a plan to deal with structural macro headwinds are necessary to rerate China’s equities,” Goldman Sachs analysts wrote in a note.
Bloomberg reported that if history serves as a guide, China’s stock market is expected to see more rebounds. The past two CSRC chairmen were dismissed, and the stock market continued to rise.
After Liu Shiyu succeeded Xiao Gang in 2016, the benchmark CSI 300 index rose by more than 40% in the past two years. After Liu Shiyu was replaced by Yi Huiman in 2019, the index rose more than 80% in two years.
However, Bloomberg warned that major market interventions by the Chinese Communist Party are rarely smooth. Compared with previous market downturns, China’s economy now faces greater challenges: the real estate crisis shows no sign of ending, geopolitical tensions with the United States continue to simmer, and foreign investors are wary of the government’s crackdown on private enterprise.
22V Research analyst Michael Hirson pointed out that more importantly, the China Securities Regulatory Commission is limited in its ability to turn the market around. It cannot direct the intervention of a “national team” or activate some kind of stabilization fund, and it can do little on its own to boost economic growth.
Wang Yan, China market strategist at Montreal, Canada-based Elmo Macro, pointed out that just changing the chairman of the China Securities Regulatory Commission will not fundamentally change anything, and the performance of China’s stock market reflects weak growth and lack of confidence. Unless Beijing addresses these issues, stocks are likely to continue to struggle.
The Economist: Xi Jinping is most injured
The British “Economist” published an article on February 7 titled “The nightmare in China’s stock market is far from over.”
The article points out that managing China’s securities regulators is a dangerous job. A market crash could end your career, or worse. Before being dismissed, Yi Huiman should have realized that he was in a dangerous situation. Since the beginning of this year, the market value of mainland China and Hong Kong exchanges has evaporated by more than US$1 trillion. On February 5, the Shanghai Composite Index fell to its lowest point in five years. Overall, the index has fallen by more than a fifth since the start of 2022.
While Chinese stocks have underperformed for much of their 30-year history, the current downturn feels different than before. The article explains that this is because China’s economic prospects are bleaker than at any time in modern history. The poor state of the housing market is the main problem. Prices and sales have been falling for more than a year; officials have failed to stem the stock market correction.
During the 2015 stock market crash, the mantra of retail investors was: “Sell stocks, buy real estate.” No one shouts that now. Worse, government rescue plans are not up to the task.
The article stated that the plunge in China’s stock market should worry the leader of the Communist Party of China, Xi Jinping, for several reasons. One reason is that more than 200 million Chinese own stocks, and officials may be blamed for the stock market downturn. Another reason is that the market reflects outside perceptions of the CCP and its leadership.
Until recently, global investors had a soft spot for Chinese stocks. Their inclusion in MSCI’s flagship emerging markets index in 2018 was welcomed by asset managers and hailed as a step towards making China’s stock market more international. Needless to say, the excitement has worn off. The clearing policy has damaged Xi Jinping’s reputation. Xi Jinping inflicted further damage on Russian President Vladimir Putin’s support after he invaded Ukraine. Most investors agree that nothing could hurt Xi Jinping more than a multi-year housing downturn.
Although the Chinese government still hopes to attract investment, foreign investors are fleeing. They have been net sellers for months, offloading $2 billion worth of stock in January alone. The sell-off in Chinese stocks has been so severe that some experienced foreign investors have gone out of business.
Singapore hedge fund Asia Genesis Asset Management Pte announced in January this year that it would close its macro fund after it suffered an “unprecedented sharp decline” following a plunge in Chinese stocks and a rise in Japanese stocks.
The article points out that most foreign investors have little hope for a quick recovery. An investment manager at a foreign bank in Shanghai said the stock market may stabilize in the coming weeks. In fact, on February 6, the CSI 300 Index closed with a gain of more than 3%, its best performance in more than a year. However, until China’s leaders come up with an ambitious enough plan to repair the housing market, depressed confidence levels will persist. The manager noted that this could take years.
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2024-02-08 19:42:23
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