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The backstory: China and Hong Kong's stock markets have been on a rollercoaster over the past few years, losing over US$6 trillion since 2021. One big reason is the slumping real estate sector, which took a major hit with Evergrande's default last year, setting off a chain reaction in the industry. Plus, China's recovery from COVID has been slower than expected, not to mention rising tensions between China and the US, which haven't helped. At the same time, high youth unemployment, sinking exports (meaning other countries aren't buying as much of China's products) and mounting local government debt have added to the economic trouble.
More recently: In late January, China's CSI 300 (the stock index that reflects how well the top 300 stocks are doing) hit a five-year low. On top of that, production and manufacturing in the country had been falling behind for four months straight, which has a negative ripple effect on the economy. So, to ease market jitters, China rolled out some new measures. For example, it tightened up short-selling rules back in October. For context, short selling is when someone bets that certain stocks will fall in price. When a lot of short selling is going on, it can push stock prices lower, which then makes investors less confident about putting their money into the market. So this isn't good for a market that's already facing bumps in the road. The government is also considering a potential rescue package worth about 2 trillion yuan (US$280 billion), where it would buy some shares to help level out the market.
The development: China just made a surprising move by naming Wu Qing as the new chairman of the CSRC, replacing former head Yi Huiman, who had been in charge since 2019. This update came from state media Xinhua just before the Chinese New Year celebrations begin and the markets take a pause. And some are saying it's a sign of stronger measures to come from the government in an attempt to boost the market.
With experience leading the Shanghai Stock Exchange and working in Shanghai's government, Wu is no stranger to the financial scene. He earned the nickname the "broker butcher" during his previous stint at the CSRC for shutting down 31 firms in the mid-2000s. He also cracked down on insider trading at mutual funds in 2009. He has close ties to China's second-ranking official, Premier Li Qiang, from their time working together in Shanghai. Although Wu was considered for the CSRC chairmanship last year, he received a promotion within Shanghai's government instead.
"More than anything I think it shows the authorities' resolve to end this rout and to turn things around," said Huang Huiming, a fund manager at Nanjing Jing Heng Investment Management. "Announcing the personnel change right before the Spring Festival, with just one day left to trade, shows that the bid to boost confidence is real, it's saying to investors that the people at the top care about investment losses."
"It may raise market hopes for more forceful stock market rescue plans after the personnel change," said Xiaojia Zhi, head of research at Credit Agricole CIB. "Looking at the past experiences, Wu is highly experienced with securities regulations with his work experience in the CSRC as well as in the Shanghai Stock Exchange."
"The new CSRC head will come in with a mission to revive the markets, which is positive," said Vey-sern Ling, managing director at Union Bancaire Privee. "Having said that, he is not in a position to resolve structural and economic issues. Investors need to see improvements on those fronts to regain confidence."