Doubts raised about China securities reform


HONG KONG — China’s top securities regulator, Guo Shuqing, will leave his post to become a provincial governor in a reshuffle that casts doubt on the new top leadership’s commitment to politically difficult financial reforms. Guo’s move to become governor of eastern Shandong province is partly because his market reform drive has upset vested interests, said two sources with direct knowledge of the move. Since taking over as head of the China Securities Regulatory Commission (CSRC) in late 2011, Guo has launched a campaign against rampant insider trading, poor information disclosure and weak corporate governance. He has also sought to reform an approval system for initial public offerings that critics say favors those with political connections.

“Guo Shuqing has done some reforms at the CSRC upsetting some interest groups, especially interest groups that benefit from the IPO process,” said a source with ties to the senior leadership in Beijing. “However, Guo himself also wants to go to work at the provincial level, and is willing to go to Shandong.” New rules that Guo’s agency introduced last year aimed to crack down on inflated IPO prices, following a series of recent market offerings where share prices have slumped in subsequent weeks.

China’s IPO market has been frozen since October, and the pipeline of pending applications for the Shanghai and Shenzhen exchanges has risen to more than 800 firms. In part, the freeze is a response to investor concerns that new issues would put fresh downward pressure on existing share prices.

But it’s also a result of orders from the CSRC last year that underwriters and accountants for all IPO applicants review financial statements for accuracy and completeness and submit those to the agency this month. Once that self-review process is complete, the CSRC plans to conduct its own review of applicants.

Guo also implemented reforms to streamline the process for de-listing poorly performing companies. That may have angered bosses from China’s powerful state-owned enterprises (SOEs), which comprise the vast majority of listed companies. “The Chinese equity market underperformed over the last three years. Investors are concerned about the governance structure of listed companies. If that cannot be resolved, the Chinese equity market will continue to face pressure,” said Shen Minggao, head of China research for Citigroup in Hong Kong.

Guo was also an advocate of financial innovation, especially in the brokerage sector, where he has authorized new product offerings and encouraged firms to diversify their business lines to encompass asset management, futures trading and securitization.

Xiao Gang, chairman of Bank of China , the country’s fourth-largest bank by assets, is a leading candidate to replace Guo at the CSRC, the other source said. A financial industry source said Guo was once considered the most ideal candidate for the post of central bank governor as his “resume was complete.” Guo previously served as chairman of China’s second-largest bank, China Construction Bank, and was vice governor of the impoverished southwestern province of Guizhou.