Mainland China’s stock markets should learn from Hong Kong: central bank adviser
But local CPPCC member says Hong Kong government only broadly intervened once, in an extreme case, in 1998-99
A prominent economist and former central bank adviser has urged Beijing to “learn from Hong Kong” to rectify its financial markets to prevent them endangering people’s livelihoods and hurting prospects for a consumption based economy.
Li Daokui, now a Tsinghua University professor, urged the government to reform the stock market with the same commitment it had shown fighting “tigers and flies” in its anticorruption campaign. He was speaking at yesterday’s meeting of the Chinese People’s Political Consultative Conference (CPPCC).
“The volatility of China’s financial markets have become a direct threat to China’s economic development, transformation and upgrading … and China must win this tough fight to stabilise the stock and currency markets,” Li said.
“I suggest setting up specialised securities procuratorates and financial courts, to strengthen law enforcement and avoid interference from local institutions of the listed companies,” he said.
Authorities have cracked down on market wrongdoing and arrested high-ranking officials, hedge fund managers and some big retail investors, after China’s stock market benchmark surged by 130 per cent in 9 months to its peak in mid-June before crashed by more than 40 per cent in the following two months.
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After the market rout in July and August, Yao Gang, the former deputy chairman of the China Securities Regulatory Commission (CSRC), and his subordinate Zhang Yujun, the former CSRC assistant chairman, were taken away by party discipline inspectors, but the results of their investigation remains unknown.
Analysts broadly believe the probe will touch on a power struggle at a higher level.
Xu Xiang, a legendary hedge fund manager, and several senior officials with China’s biggest brokerage Citic Securities, were also arrested late last year. There has been no announcement on how that investigation is progressing.
“The rushed campaign to salvage the markets last year exposed problems ranging from insider trading to corruption,” said Harrison Hu, an analyst at a state-owned brokerage in Shanghai. “However, these problems are rooted in China’s bureaucracy, and cannot be sorted out only with reforms in the securities markets.”
Li also suggested learning from Hong Kong’s experience in fighting short-sellers in 1998 and 1999, using a public “stabilisation fund” to bolster the markets when panic selling sent the financial markets into free-fall.
READ MORE: Day when the only way was down: Panic selling in mainland Chinese stocks spreads to Hong Kong
Francis Leung, a senior investment banker in Hong Kong and a CPPCC member, said Beijing should not pin high hopes on a “stabilisation fund”.
“The Hong Kong government used the measure only once, and it was an extreme case. I think the fundamental problem with the mainland market is how to strengthen law enforcement and make it more transparent,” Leung said.
There were now 100 million retail investors on China’s stock markets, half of whom lost 25,000 yuan in January, Li said.
China’s financial structure had become unprecedentedly complicated, with a great number of banks and enterprises holding stocks, Li said. Most worrying, the vicious interaction between the stock and currency market is directly challenging stability of the whole financial system, he added.
