China Probes Market Watchdog's Vice Chair After Stocks Rout

Updated on
  • Yao is most senior CSRC official under probe since the selloff
  • Financial industry now a focus of China's graft crackdown

China’s top graft-buster announced an investigation into a senior official at the nation’s securities regulator on Friday, as the government deepens its crackdown on the financial industry in the wake of a $5 trillion stock-market selloff.

Yao Gang, one of four vice chairmen at the China Securities Regulatory Commission, is under investigation for “alleged serious disciplinary violations,” the Communist Party’s Central Commission for Discipline Inspection said in a statement on its website, employing language that often refers to corruption probes. Yao, 53, assumed his post in 2008 and had been put in charge of the regulator’s issuance department since 2002, according to the statement. He couldn’t be reached for comment.

China’s financial industry has become the focus of a crackdown as President Xi Jinping expands his campaign against corruption and officials grapple with the aftermath of the stock rout over the summer. A number of high-ranking industry figures have since come under scrutiny as officials investigated trading strategies, decried “malicious short sellers” and vowed to “purify” the market.

The government’s response to the market slide involved state-directed purchases of shares, a ban on initial public offerings and restrictions on selling equities, raising questions among investors about its commitment to market reforms. Concurrently, a campaign was started to root out financial wrongdoing and assign blame for the rout.

“This is significant. Yao has been in charge of the issuance department for over a decade. This is the part of the capital market where rent-seeking is the most rampant,” said Shen Meng, a director of Chanson & Co., a Beijing-based investment bank. An investigation into this area may signal fundamental change to the country’s financing mechanisms and a more orderly development of capital markets, he added.

Meanwhile, China plans to lift a five-month freeze on initial public offerings by the end of the year, the CSRC said last week.

Under Scrutiny

The Communist Party’s Central Commission for Discipline Inspection is carrying out its first broad checks on the finance industry since Xi became the party’s head in November 2012.

The People’s Bank of China, the nation’s five biggest lenders, sovereign-wealth fund China Investment Corp. and the banking, securities and insurance regulators are among 31 entities that will be inspected for possible misconduct or corruption, according to an Oct. 23 statement from the Communist Party’s disciplinary body.

Zhang Yujun, an assistant chairman at the CSRC, is under investigation on suspicion of “severe disciplinary violations,” the disciplinary committee said Sept. 16.

Xu Xiang, general manager of hedge fund Zexi Investment, is facing a probe for alleged insider trading and stock manipulation, state media reported Nov. 1. Executives at brokerage Citic Securities Co., including President Cheng Boming, are also under investigation.

— With assistance by Paul Panckhurst, and Aipeng Soo

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