By Benjamin Kang Lim and Kevin Yao
Xiao Gang, the embattled head of China’s securities regulator, has offered to resign, sources said, after perceived mismanagement wiped more than $5 trillion off the value of the Shanghai and Shenzhen stock markets since they peaked last June.
The 57-year-old chairman of the China Securities Regulatory Commission (CSRC) tendered his resignation last week after his brainchild – a “circuit breaker” mechanism to limit stock market losses – was blamed for exacerbating a sharp sell-off, a source with ties to the leadership and a financial industry source told Reuters.
The “circuit breaker” was deactivated on Jan. 7, just three days after its introduction.
“The (Communist Party) central (leadership) is extremely unhappy with Xiao Gang. It is certain he will change jobs,” the source close to the leadership said, adding it was unclear where he would go next.
“Xiao Gang handed in his resignation last week,” said the financial industry source.
Both sources requested anonymity because they were not authorized to speak to the media.
It’s unclear whether Xiao’s resignation offer has been accepted by the central government. The CSRC did not immediately respond to requests for comment.
Xiao’s term does not formally expire until end-2018. Before taking over at the CSRC in 2013, Xiao was chairman of the country’s fourth-biggest lender, Bank of China Ltd for a decade.
On Saturday, Xiao gave a speech at an annual meeting in which he said the stock market rout highlighted the problems facing the CSRC’s regulatory mechanisms.
“The abnormal stock market volatility has revealed an immature market, inexperienced investors, an imperfect trading system and inappropriate supervision mechanisms,” he said.
The abrupt suspension of the “circuit breaker” followed a flurry of measures by the CSRC last year – including halting short selling and banning share sales by major shareholders – in a bid to stabilise markets after major indexes plunged more than 40 percent in the summer.
Indexes later rebounded around 25 percent from their August lows, but have this month dropped back into bear market territory – usually a reference to a market’s 20 percent slide from its last cyclical peak. The turbulent start to 2016, with currency and stock markets tumbling, has stoked concerns that Beijing’s policymakers are fumbling as China heads towards its slowest annual growth in a quarter of a century.
China is expected to report its weakest quarterly economic growth in nearly seven years on Tuesday, putting policymakers under more pressure to take bolder steps.
The party’s Organisation Department, or personnel ministry, has short-listed three candidates to succeed Xiao, the sources said.
Xiang Junbo, who turns 59 this month and is chairman of the China Insurance Regulatory Commission (CIRC), is the leading candidate, they said. The CIRC declined immediate comment.
Another candidate is Huang Qifan, 63, mayor of the southwestern metropolis of Chongqing, who is also tipped to become secretary-general of the State Council, or cabinet, and may concurrently serve as CSRC chairman, the sources said.
If confirmed as cabinet secretary-general, Premier Li Keqiang’s right-hand man, Huang would have to tackle a stalling economy and market turbulence as well as oversee the entire spectrum of portfolios: from industry to agriculture, energy, the environment, state planning and technology, according to a Reuters report last week.
The identity of the third short-listed candidate is not known.
“The Organisation Department has sounded out all three candidates and completed background checks,” said the source with leadership ties.
Xiao, Xiang and Huang could not be reached for comment.
The benchmark Shanghai Composite Index, the share market most closely watched by Chinese investors, last week fell below the lows seen during last year’s crash, closing on Friday at 2,900 points – its weakest close since December 2014.
The index rose 0.4 percent on Monday.