New chairman must continue along reform path for market

The headquarters of China Securities Regulatory Commission in Beijing, July 7, 2006. [Photo/IC]

Perhaps the stock market index will rise today following the news over the weekend that the head of China Securities Regulatory Commission has been replaced.

Xiao Gang became chairman of the CSRC in March 2013, when the Shanghai Composite Index was around 2,200 points. After three tumultuous years, especially the stock market rout last summer, he is being replaced by Liu Shiyu, the former chairman of the Agricultural Bank of China, with the market index 2,800 points at the close on Friday.

Whether the index goes up or down on the news, it will only be temporary. A change of CSRC's boss will have no bearing on the long-term performance of the market.

What the CSRC will have to do now is learn the lessons of its past reform attempts, the unsuccessful and the successful, and the ones that were sabotaged by officials now facing corruption charges, and take more effective measures to establish a healthy capital market.

The change of chairman must not, most importantly, result in a long pause in the reform process, especially at a time when the country is undergoing an important transition, and the many inevitable changes that entails for listed and would-be listed companies in the world's second-largest economy.

The domestic A-share market is responsible for facilitating this historic change. Its role must be protected by a just and effective regulatory power that can be held accountable to international and domestic investors.

China's soon-to-be-launched 13th Five-Year Plan (2016-2020), pending the approval of the National People's Congress in March, will represent the largest amount of capital expenditure that the nation is ever likely to make, and result in many new corporate entities, such as more service providers.

The CSRC must continue policing the market and crack down on irregularities with greater force, whatever listing practice it adopts. This should be the first priority for its new chairman. Having said this, it must be pointed out that being China's chief stock market regulator is also a visionary job.

China's domestic stock market is a young and imperfect market in an economy that needs rebalancing. The CSRC must demonstrate its understanding of reform by highlighting its strong points and avoid playing up its weak points.

It must handle relations with retail investors (the largest group of the kind in the world), and learn the proper skills to guide them to rationality. And it must set an example, when necessary, by equally applying the laws to majority shareholders in the State and private sectors so that it can earn the trust it needs.