China's top securities regulator, Guo Shuqing, will leave his post to become a provincial governor in a reshuffle that casts doubt on the new top leadership's commitment to politically difficult financial reforms.
Guo's move to become governor of eastern Shandong province is partly because his market reform drive has upset vested interests, said two sources with direct knowledge of the move.
Since taking over as head of the China Securities Regulatory Commission (CSRC) in late 2011, Guo has launched a campaign against rampant insider trading, poor information disclosure and weak corporate governance.
He has also sought to reform an approval system for initial public offerings that critics say favors those with political connections.
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"Guo Shuqing has done some reforms at the CSRC upsetting some interest groups, especially interest groups that benefit from the IPO process," said a source with ties to the senior leadership in Beijing. "However, Guo himself also wants to go to work at the provincial level, and is willing to go to Shandong."
New rules that Guo's agency introduced last year aimed to crack down on inflated IPO prices, following a series of recent market offerings where share prices have slumped in subsequent weeks.
China's IPO market has been frozen since October, and the pipeline of pending applications for the Shanghai and Shenzhen exchanges has risen to more than 800 firms. In part, the freeze is a response to investor concerns that new issues would put fresh downward pressure on existing share prices. But it's also a result of orders from the CSRC last year that underwriters and accountants for all IPO applicants review financial statements for accuracy and completeness and submit those to the agency this month. Once that self-review process is complete, the CSRC plans to conduct its own review of applicants.
Guo also implemented reforms to streamline the process for de-listing poorly performing companies. That may have angered bosses from China's powerful state-owned enterprises (SOEs), which comprise the vast majority of listed companies.
"The Chinese equity market underperformed over the last three years. Investors are concerned about the governance structure of listed companies. If that cannot be resolved, the Chinese equity market will continue to face pressure," said Shen Minggao, head of China research for Citigroup in Hong Kong.
"Transparency, information disclosure, insider trading - these kinds of concerns are overwhelming."
Guo was also an advocate of financial innovation, especially in the brokerage sector, where he has authorized new product offerings and encouraged firms to diversify their business lines to encompass asset management, futures trading and securitization.
Xiao Gang, chairman of Bank of China, the country's fourth-largest bank by assets, is a leading candidate to replace Guo at the CSRC, the other source said.
A financial industry source said Guo was once considered the most ideal candidate for the post of central bank governor as his "resume was complete". Guo previously served as chairman of China's second-largest bank, China Construction Bank, and was vice governor of the impoverished southwestern province of Guizhou.
Asked about the impact of Guo's departure from CSRC on the prospects for further financial reform, Citigroup's Shen said it was "slightly negative."
"At least it increases the uncertainty about policy changes. I'm not saying his successors are not reformers, but it will take a while for the market to understand what the new policy will look like," he said.
It was not immediately clear what the move means for Guo's future career prospects. Spending time in a senior provincial post is a common career move for China's rising officials, often considered necessary for moving into the most senior positions later. However, as provincial governor, Guo will be the second-ranking official in the agricultural and industrial base of Shandong, behind the Communist Party boss.
Guo previously served as deputy governor of southwestern Guizhou province, one of China's poorest.
Reuters reported last week that 56-year-old Guo had been offered the job as head of China Investment Corp (CIC), the country's sovereign wealth fund, but had expressed reluctance to take that post.
Reached for comment about Guo's mooted move to Shandong, the news office of the CSRC said: "We don't know the situation. We've seen the rumors, but we haven't received related information."