CIC's Zhang Says China Learns From `Disaster' Managing Rout

  • Regulator made `huge mistake' in handling equity market: Zhang
  • China to grow at rate of 4 percent to 5 percent, Zhang says

China Investment Corp.’s Larry Zhang, who heads public equities at the nation’s sovereign wealth fund, said securities regulators are learning to manage the market after making mistakes in handling a stock rout that wiped out $5 trillion.

“It was a disaster how they managed public equity, it created turbulence,” Zhang said during a panel at the Milken Institute Global Conference in Beverly Hills, California, on Tuesday. Zhang said that the former head of the China Securities and Regulatory Commission “made a huge mistake on how to manage the market. They are learning.”

China in February named Liu Shiyu as the head of the CSRC after policy missteps by his predecessor Xiao Gang rattled investors and helped deepen a plunge in the world’s second-largest stock market. The slump last summer reverberated across global financial markets and triggered unprecedented state intervention as the government sought to prevent the turmoil from spreading to an economy already growing at its slowest pace in 25 years.

“The communication was poor and they’re still learning how to communicate with the market,” said Zhang, who praised the governor of the People’s Bank of China for his “skilled” communication.

Gao’s Criticism

Former CIC President Gao Xiqing had also aired his frustration last year on regulators’ handling of the stock-market turmoil. Policymakers say “now we’re innovating, so you can all come in -- using high-frequency trading, hedging, whatever -- to play in our markets,” Gao, also a former vice chairman of the CSRC, told a forum in Beijing on Nov. 6. “A few days later, you say no, the rules we made are not right, there are problems with your trading, and we’re putting you in jail for a while first,” he said, referring to moves by authorities to detain some executives.

Beijing-based CIC, which managed $740 billion in assets as of 2014, boosted public equities by 3.7 percentage points in 2014 to 44.1 percent of its overseas holdings, according to its latest annual report.

Zhang said China’s economy will grow at a “reasonable” rate of 4 percent to 5 percent amid reforms in industries such as coal and steel, where the government is proposing capacity cuts. China will close between 100 million and 150 million metric tons of annual crude steel capacity by 2020, according to an outline published on the website of the State Council on Feb. 4.

It’s not in China’s interest to have a strong yuan, according to Zhang, who said a stable Chinese currency is positive for the global market.

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