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A Fallen Angel; By K. Subramanian

Updated: Sep 1, 2023

C3S Paper No. 0030/2016

This is the story of the fall of Mr. Xiao Gang, Chairman, China Securities Regulatory Commission (SCRC). Official Xinhua News Agency announced on Saturday (20thFebruary) that he has been forced out of the office as China’s chief regulator. It was reported to be a criticism of his role in amplifying the country’s stock market turbulence. In authoritarian regimes such as China’s there is no appeal against decisions taken by the government or, more importantly, by the Party.

In retrospect, one feels rather sad over this development. Indeed, the stock market in China has been undergoing extreme turbulence since July last year. The present writer has covered the stock market episodes in two separate articles.[1] Mr. Gang is a banker with a creditable record. He served in the Peoples Bank of China (PBOC) for 22 years and rose to become a Deputy Governor. Later, he was appointed Chairman of the Bank of China and worked for a decade. During his Chairmanship of the BOC, he put through a $13.7 billion dual listing in Shanghai and Hong Kong. BOC was the first of China’s big state-owned banks to sell shares to the public.[2]

Based on his stellar record, he was appointed as Chairman of the CSRC in March 2013. He was specially chosen by the new leadership for the jab, i.e. to steer the reform of the financial infrastructure. Both the government and the CPC were keen to promote China’s stock market in their efforts to open up and integrate China’s economy globally. The policy considerations which led to greaterreliance on a growing stock market have been narrated at length in another paper by this writer.[3]

For Gang, times were out of joint; despite his background and experience, the turbulence in the market was uncontrollable. He tried to calm the market and took several steps to control the over-heated values of the stocks. The measures adopted were truly drastic. He capped short selling and some speculators were arrested. A ‘national team’ consisting of the Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, China Petroleum, etc. was formed and it poured in millions of Yuan and acquired 6 percent of shares. Initial Public Offering (IPO) was banned with a view to limit the supply of shares and drive up the value of shares already listed. A ban was imposed on sale of shares by those who already held chunks (5 percent or more) in listed companies. This was to remain force up to end of December 2015. Sadly, these measures did not save the market and brought only an uneasy peace.At the same time, they raised doubts about China’s commitment to put through financial reforms. It needs to be emphasized that these measures, especially the formation of a ‘national team’ and using the billions of Yuan of government owned banks and companies could not have been taken by the SCRC on its own bat. The Chairman should have taken them in consultation with and the approval of the government.

It was unfortunate that Mr. Gang hit upon the idea of introducing “circuit breakers” without due care or realizing the fuller implications of its impact on the psychology of the market or its efficacy.Many economists have criticized the SCRC for applying wrong thresholds and timing, especially raising them too soon without testing the waters. Ultimately, the breaker had to be abandoned within three days of its introduction. This was on 7th January.

Strangely, Gang was aware of the heavy winds he had to encounter.  On 17th January, he delivered a speech at a national meeting of Chinese securities officials and posted on SCRC’s website.[4] He defended his handling of successive meltdown s and blamed the “abnormal volatility” on “an immature market, inexperienced investors, imperfect trading system, flawed market mechanisms and inappropriate supervision systems.” He explained response was essentially crisis management and “various departments “addressed market dysfunctions and prevented a potential systemic risk through joint efforts.” In short, other departments were also involved and SCRC was not alone. He blamed for spreading “exaggerated storytelling” to hype up stock prices. More importantly, he warned of “increasing regulatory challenges” ahead from rising uncertainty in external markets, including global equity-market slump, plummeting commodity prices and currency devaluations in emerging markets. My paper on “China’s stock market conundrum”[5] refers to these global factors and how China’s stock crisis was not the cause of global crisis but a consequence.

Unfortunately for Gang, the Chinese authorities were not pleased. Indeed they had panicked and over-reacted. Globally, they felt acutely embarrassed as it seemed to strain credibility and their ability to manage the economy. They did not realize that, to a greater measure, it was their lack of transparency that created the mayhem for a while. Somebody had to take the blame and poor Gang had to face the wrath.

It appears that within days Gang had submitted his resignation to the government. On 18th January, Reuter’s carried a report [6] that China’s stock regulator had offered to resign. The report added that he was blamed for the exacerbating a sharp sell-off and for the failure of his brainchild, the circuit breaker. Sources also added, “The Communist Party central leadership is extremely unhappy with Xiao Gang. It is certain he will change jobs.”

For days, the CSRC and other Chinese authorities denied the report vehemently. Perhaps there were debates within the power circles as to who should bear the responsibility.

On 20th January, most of the financial papers such as Financial Times, The New York Times, The Wall Street Journal, etc. flashed reports that Gang had been “dismissed.” The brief announcement indicated that Gang did not resign but was dismissed! Top leadership blamed him for failing to head off the stock market bubble that ballooned from late 2014 to the middle of 2015.

Liu Shiyu who is an engineer trained in Tsinghua University had his early stint with the PBOC was Deputy Governor was also the Chairman of Agricultural Bank of China. Liu’s job is not going to be easy – he will have to a wear a crown of thorns. As New York Times explained, “.. the biggest challenge for Mr. Xiao’s successor may be lack of autonomy. The senior leadership gave little latitude to Mr. Xiao and it is likely to vet and second guess his successor as well.” Will Liu become another fallen angel? Perhaps.


[1] Chinese Stock Market Tantrums: To Control or to Control, C3S Paper No.0008/2016 dated. January 8, 2016 and The Circuit breaker that failed, C3S Paper No.0013/2016 dated January 12, 2016.

[2]  Reuters’s (2016); China market tsar in spotlight amid stock market turmoil, January.

[3] Subramanian, K: (2016), China’s stock market conundrum, CV3S Paper No..

[4]The Wall Street Journal (2016): China’s Securities Czar Casts Wide Blame for Market Turmoil, Jan. 17.

[5]  Footnote 3, above.

[6] Reuter’s (2016): Exclusive-China’s chief stock regulator has offered to resign-sources, Jan. 18.

(The writer Mr. K. Subramanian, is an Associate of the Chennai Centre for China Studies – C3S. Email:

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