Chinese Investors Dislike Market
Regulation
On a bright spring afternoon on March 26th, when Ms. Liu Yuli
walked out of her reserved seat in a brokerage house in downtown Shanghai, she
couldn't feel anything but the pain of just settling her loss - $12,489 - a
down payment for a new apartment she wanted to buy.
"In the past four years, "said Ms. Liu, a retired elementary school
teacher, "through ups and downs, never had I anticipated a loss as much
as this". But oddly enough, Mrs. Liu blamed regulators for her suffering.
From the beginning of 2001 to the Chinese New Year in February, 2002, nearly
ninety percent retail investors suffered losses in their stock market
investments, among which 81.64% reported that their losses were over 30%,
according to a survey conducted by Shenyin & Wanguo Securities Co. In that
same period of time, the composite indexes of shares in Shanghai and Shenzhen
lost 28%, according to statistics compiled by Hong Kong China News Agency.
Because of these large losses among investors, those reform-minded regulators
who favor draconian regulations to regulate the market are losing momentum,
never mind the impending entrance of foreigners into China's financial market
under WTO commitment.
"With everybod's losing money, the public sentiment towards a
heavy-handed regulation has changed drastically," said Shen Yufei, an
analyst at Citic Securities in Shanghai. Last year, China saw by far the
strongest regulatory efforts, as reform-minded regulators steadily claimed
power after years of efforts to let market participants and listed companies
into line with world practice. Rampant price manipulation, wide-spread
accounting tricks and lack of law enforcement forced the Chinese authority to
seek better financial supervision and corporate governance.
The trend of hiring overseas Chinese who have experience in mature financial
markets reached a climax with the appointment of former Hong Kong Securities
and Finance Commission vice chairman Laura Cha as China Securities Regulatory
Commission's vice chairman early last year. She was the first non-mainland
Chinese to work as a vice minister level official inside Chinese bureaucracy.
But now analysts said they have noticed early signs of those regulators'
gradually losing political support, as well as public support of their
efforts. Regulators denied the existence of such attempts by higher
authorities to influence their day-to-day decision-making.
"From the moment I took this job, no one ever told me to go on, or to
stop," said Laura Cha from CSRC.
Wu Kan, an analyst at Shanghai Securities Consulting Firm had a different
view. "We saw a sharp decline in CSRC's new rules and regulations, along
with decline in the number of companies it has disciplined for irregularities
this year. It may illustrate the underlying changes in regulatory
efforts,"Wu says.
The numbers seem paltry, Wu says, especially because in 2001, China Securities
Regulatory Commission introduced 51 new regulations and rules, disciplined
more than 81 listed companies and 10 intermediaries, including law firms and
accounting firms.
"Ebbing investor confidence, growing investor resentment towards
heavy-handed regulations might be a major reason," Wu says.
In a market highly sensitive to regulatory activities like China's, investors'
accumulated losses after the year-long strong regulatory efforts are easily
transformed into a sentiment against further such efforts.
"I hate companies cooking their books or manipulating share prices. But I
don't understand why the regulators made us, investors, suffer," said
Mrs. Liu, "We didn't do anything wrong."
Shortly after February, furious investors criticized reform-minded regulators,
especially those from overseas, for blindly copying other markets' regulatory
efforts, with little respect to China's unique situation.
"China's stock market has many chronic diseases, which can not be cured
overnight," said Mr. Zhang who stood outside the same brokerage house as
Ms. Liu did when she suffered her loss of $12,489. Zhang was a middle-aged
worker who has recently been laid off. But he said he had long ignored the
meager payment he received from his state employer, a rubber tire factory,
because he could make his living by speculating in the stock market.
It is not the lay-off, but the recent loss of $20,000 in the last year that
made him panic.
"That loss almost wiped off my years of gains in stock market,"
Zhang said. He used Chinese word "winning" in explaining his gains
over the years, as if he was talking about buying lottery. And he, too,
believed regulatory efforts caused market downturn and threw hundreds of
thousands of small speculators, like him, out of the market.
"Investors in China rarely see the market as an investment tool. They see
it as a big casino,"said Wu Jinglian, an economist at Development and
Research Center of State Council.
"The regulators shouldn't allow market free falling," added Zhang in
a furious gesture.
His words echoed those critics who often set regulatory efforts against
development of the market and claimed that regulators'cracking down on
irregularities invariably causes market volatility and sabotages investor
confidence.
In fact, regulators who used to be praised as "sticklers for fighting
corruption" are now being attacked as "people who want to dampen the
market in order to reap huge profits when the shares are cheap", some
Chinese investors said in online chat rooms. Regulators like Laura Cha ignored
such criticism.
"Development and regulation are two different things. I don't see why
regulation will contradict with the market's development. My job is to
maintain the market's credibility," said Luara Cha in a recent interview
in Beijing.
However, on the political spectrum, a recent stock market seminar in Beijing
highlighted the divergence among officials in supporting heavy-handed
regulation. In an effort seen as cheering up the market, four former CSRC
chairmen coincidentally made speeches saying the development of market should
be the priority under any circumstance.
Three official business newspaper published their speeches in the front page
the next day, splashing headlines like "Development Is The Most Important
Thing In The Market". Almost all the indexes stopped declining and gained
slightly at closing on that day.
"With such a change in official rhetoric, you can't help but think 'Is
this voice for development going to outweigh regulatory efforts'," said
Wang Shuo, vice managing editor of Caijing magazine, a magazine famous for its
disclosures of corruption in China's stock market. END
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