Chinese Investors Dislike Market Regulation

By Feiwen Rong

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.

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