Southern Perspective Shenzhen

Regulating a stock market is not a simple task, as we discussed in the last post, “The Chinese Stock Market, I’m all in and I make all the rules”. 

There is a fundamental difference between the way in which China regulates its securities market and the way many Western markets are regulated. 

This difference is most observable in the basic functions of the Chinese Securities Regulatory Commission (CSRC) and the Securities and Exchange Commission (SEC). 

The SEC is focused on ensuring compliance to regulations, the CSRC “balances” two responsibilities, ensuring compliance and encouraging growth/development. 

Is this arraignment a classic case of the wolf guarding the chicken coop?

The CSRC is the door keeper to the market, they issue licenses to different types of financial service firms. 

Usually, these are short term, for a year, and the CSRC can control market access and, in effect, regulate the market by controlling these licenses. 

The question that comes into play is how does the CSRC monitor itself internally to ensure that these licenses are issued in way to encourages growth of the overall market and that opportunities for self enrichment are controlled? 

Next week we will discuss some of the recent history in regards to State Owned Enterprises (SOE) and the trouble they have had in reform.