China's new securities chief says markets are still full of risks

  • "Right now, due to the impact of many domestic and foreign factors, the capital market risk situation is still grim and complex," Yi Huiman, chairman of the Chinese Securities Regulatory Commission, said in Mandarin during a Wednesday press conference.
  • Yi was appointed chairman of the China Securities Regulatory Commission in late January. He was previously the chairman of the Industrial and Commercial Bank of China, one of the country's four major state-owned banks.
  • Chinese stock markets were one of the worst performers in the world last year.
Yi Huiman listens to a speech during the China Development Forum on March 24, 2018 in Beijing, China.
Visual China Group | Getty Images
Yi Huiman listens to a speech during the China Development Forum on March 24, 2018 in Beijing, China.

China's newly appointed securities regulator said Wednesday that the country's capital markets still contain many risks.

"Right now, due to the impact of many domestic and foreign factors, the capital market risk situation is still grim and complex," Yi Huiman, chairman of the Chinese Securities Regulatory Commission, said in Mandarin during a press conference, his first in the role.

He added, according to a CNBC translation, that the commission will work urgently and in a precise manner to prevent and diffuse risks in areas such as stock pledges, bond defaults and private equity funds.

Beijing tried to maintain market stability during last year's plunge by encouraging investors to support companies that faced challenges from putting shares up as collateral.

Yi discussed on Wednesday his "four essentials" for healthy development of capital markets, which focused on greater respect for markets, the law, professionalism and risks.

The commission also noted in a paper handout that it is closely monitoring U.S.-China trade tensions.

"We need to increase U.S.-China market cooperation," Fang Xinghai, vice chair of the commission, said at the press conference. "We think this kind of work has benefits."

Fang and Yi did not give much detail in response to a question about China's initiatives to open up its financial sector. The bulk of the more than one-hour-long press conference focused on plans for a new science and technology stock listing board expected to launch in Shanghai later this year.

Yi was appointed chairman of the China Securities Regulatory Commission in late January. He was previously the chairman of the Industrial and Commercial Bank of China, one of the country's four major state-owned banks.

Chinese stocks have surged in the last few weeks, helped by improved sentiment about U.S.-China trade tensions, government support and foreign inflows.

The Shanghai composite is up more than 20 percent from a low hit in early January, putting the index back into bull market territory. The CSI 300 and Shenzhen component have climbed at a faster pace, up more than 23 and 26 percent, respectively, for the year so far.

Morgan Stanley raised its targets on Chinese stocks in a Tuesday report, citing stronger-than-expected stimulus, a stronger currency forecast, and greater expectations for a U.S.-China trade deal. Equity Strategist Laura Wang and her team now expect further gains of about 15 percent for the CSI 300 by the end of the year. The strategists also pointed to broader government support for the market.

Chinese President Xi Jinping said on Feb. 22 his government needs to improve reform of financial markets and spoke generally in support of financial services.

Larry Hu, chief China economist at Macquarie, struck a more negative tone on the market's latest rally and the economic backdrop in a Tuesday note.

"Given we don't think the strong credit growth in (January) is sustainable, growth deceleration could continue in the months ahead," Hu said. "Out of the three major growth drivers of the Chinese economy, both property investment and exports grew around 10% last year while infrastructure investment slowed to 2% growth. This year, we expect just the opposite. Both property investment and exports would slow to low single-digit growth while infrastructure investment could rebound to 10%."

Chinese stock markets were one of the worst performers in the world last year. The Shanghai composite fell into a bear market — more than 20 percent from a recent high — in June 2018. Losses accelerated as the Chinese economy slowed, pressured by Beijing's efforts to reduce reliance on high debt levels for growth. Rising trade tensions with the U.S. also added to uncertainty.