Bank of China Loses Chmn, Gains Regulator 中行董事长转任证监会主席

By newsdoug on March 18, 2013

China’s annual National People’s Congress has finally ended in Beijing after 2 weeks of nonstop meetings and appointments, the latest of which demonstrates the kind of musical chairs games that occur between government regulators and top executives of state-owned enterprises. The latest of those games took place over the weekend, when Bank of China (HKEx: 3988; Shanghai: 601988) announced that its chairman Xiao Gang had resigned for unexplained reasons. (company announcement) Simultaneously, Chinese media reported that Xiao had been named as the new head of China’s securities regulator, the China Securities Regulatory Commission or CSRC. (English article)

To be fair, I should point out that top industry executives in the west sometimes also go on to work at major government posts. A good example of that was Hank Paulson, who was CEO of investment banking giant Goldman Sachs before accepting the job as US treasury secretary. But such cases are relatively rare, with people seldom moving directly from corporate executive jobs directly into government offices.

Just the opposite is true in China, especially in the financial industry, where high-ranking party members seem to move freely between the corporate boardroom and the top echelons of the nation’s various regulators. An even bigger shuffle occurred in October 2011, when the chairmen of Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) and China Construction Bank (HKEx: 939; Shanghai: 601939) were named heads of China’s insurance regulator and its securities regulator, respectively. (previous post)

In that case, former China Construction Bank Chairman Guo Shuqing took over as head of the CSRC, a post he is now vacating after just a year and a half later to make way for Xiao Gang. Perhaps it’s no coincidence that China’s stock markets have done miserably during much of Guo’s CSRC tenure, turning in one of the world’s worst performances for the major global stock markets last year. Other industries that have seen similar shuffles include the telecoms and energy sectors, where chief executives have moved from one major company to another.

So, what does all this mean for Bank of China and for the banking sector in general? Frankly speaking, I doubt it will really mean very much. Many of these top executives are much like interchangeable parts that can operate in many different environments. That doesn’t mean they’re incompetent or incapable, but rather that most are very effective bureaucrats who are good at carrying out orders from top leaders in Beijing who make all the real big decisions.

One small benefit of these moves is that companies which lose their top executives to government regulators could find themselves with some important new allies in those same regulators. In this case, for example, Bank of China could find it easier to enter the securities trading business someday, and it could also earn more investment banking business for IPOs in Shanghai and Shenzhen.

Accordingly, we might see a slight rally in Bank of China shares over the next week or 2 as investors anticipate these and perhaps some other benefits over the next 2 years from Xiao’s appointment. But at the end of the day, more than anything else these kinds of moves illustrate the high degree of connections between Beijing and its top state-owned enterprises, which are equally driven by both policy and commercial factors.

Bottom line: The naming of Bank of China’s chairman as the nation’s new top securities regulator could benefit Bank of China, and illustrates the close ties between Beijing and major state-owned firms.