China, India, the capital market, its underlying economy and lessons for Sri Lanka

A key regulator replaced in China

China’s Securities Regulatory Commission Chairman Yi Huiman was replaced with Wu Qing, an apparent veteran securities regulator who led the Shanghai Stock Exchange. Possible political interference leading to regulatory forbearance, or enhanced regulatory oversight and effectiveness in China, I wondered, given I was observing this space, as global investors withdrew billions of dollars from China. 

State-backed buying, short selling restrictions et al, fail

China has a “national team” of State entities that buy up shares of local companies. This was done in response to a market crash in 2015. Analysts say, nine years on, State-backed investors are still at it, pouring $ 17 billion into index-tracking funds.

A robust regulator, a fundamental ingredient

I was in Pittsburgh Pennsylvania, when the New York stock market crashed in 1987, much of it due to program trading and inadequate regulatory intervention. Pursuant to the East Asian Financial Crisis in 1997/1998 and the Global Financial Crisis, in 2008, many in Europe, America and Sri Lanka too, questioned the market economy. On each occasion I maintained that inadequate regulation was the key and published an article here in the FT, titled “A robust regulator (whether in banking, insurance, or the capital market) - a fundamental ingredient in a ‘sustainable market economy.’”

India replacing China

Two decades ago, all bets were on China. Now, as the business standard says “much of that cash is now heading for India, with Wall Street giants like Goldman Sachs and Morgan Stanley endorsing India as the prime investment destination for the next decade” 

Political interference leading to regulatory forbearance

As a former Chairman of the SEC in Sri Lanka, (2018-2019), a Commissioner from 2015-2018, and an ex officio Commissioner in 2000-2001, I have seen the “evolution” of capital markets as well as regulation. My concern is about whether the regulator may possibly be interfered with, whether in China, Sri Lanka or anywhere, to prop up what cannot be propped up, or to politically restrain or constrain regulation leading to regulatory forbearance.

A well-wisher of China and capital markets everywhere

A decades long admirer of China – a first visit to Guangdong in 1983, then Beijing, Shanghai, Guangdong again, I became concerned about excessive construction, empty buildings, ghost cities, white elephants, and thus its growth statistics. Visiting on business, professional matters and as a tourist, I admired China for its unparalleled modernisation, industriousness, entrepreneurship, innovation, technological advances, construction prowess, rich culture, long history and much more. I remain a well-wisher of China and capital markets everywhere, but these are lessons for us all.