China’s top securities regulator was forced to bow out of his role on Saturday.
The regulator, Xiao Gang, has presided over the dramatic boom and bust of the Chinese stock market since his appointment in 2013. After months of market turbulence—with the market losing 43% of its value at one point during the summer—Xiao’s ouster is a signal designed to restore some confidence in the Chinese economy.
State news organization Xinhua announced Xiao’s removal as “according to decisions made by the Communist Party of China Central Committee and the State Council.” Liu Shiyu, a chairman of the Agricultural Bank of China, succeeds him.
Here’s what happened with China’s market meltdown:
Xiao has been criticized for his handling at almost every step of China’s wildly swinging markets—for allowing a speculative bubble to form in the first half of the year that peaked with Shanghai stocks at 150% of their value over the last year, for not handling the August crash better, and for causing even more investor confusion in the new year by experimenting with market circuit breakers.
In January, the Chinese securities regulator introduced a circuit breaker system that would halt trading when stocks fell a certain percentage—an intervention modeled after a much looser one in the S&P 500 index that is designed to limit volatility. But the breakers apparently had the opposite effect, sparking a massive sell-off that caused trading to halt only 29 minutes into the day. Party officials and investors blamed Xiao almost entirely for the volatility, The Wall Street Journal reported. According to the Journal, Xiao had been such an advocate for a circuit breaker system that the Chinese media had dubbed him “Mr. Circuit Breaker.”
The wild swings of the Chinese markets, in tandem with slowing Chinese growth and the devaluation of the yuan, has given many investors cold feet. Hedge fund manager Kyle Bass, for example, has turned his firm’s focus to shorting Asian currencies, writing in a letter to investors earlier this month: “The unwavering faith that the Chinese will somehow be able to successfully avoid anything more severe than a moderate economic slowdown by continuing to rely on the perpetual expansion of credit reminds us of the belief in 2006 that U.S. home prices would never decline.” Other hedge funds, including Soros Fund Management, are shorting Asian currencies in a bet against China’s economic health as well.
