Cranking Up China's Market Cleanup


When Laura Cha Shih May-lung was recruited from Hong Kong's Securities & Futures Commission (SFC) to join the China Securities Regulatory Commission (CSRC) as deputy chairman in February, it was hailed as a breakthrough in Beijing's efforts to clean up its dodgy markets. With her U.S. education -- she graduated from the University of Wisconsin in Madison and earned a law degree from Santa Clara University in California -- and experience in Hong Kong, Cha brings a different perspective to the commission. In fact, she's one of the CSRC's first overseas professionals.

Cha worked for a decade at the SFC, most recently as deputy chairman and executive director. On the sidelines of the 2001 Asia Pacific Economic Cooperation Forum in Shanghai, BusinessWeek Beijing Bureau Chief Dexter Roberts and China Correspondent Alysha Webb met Cha at the Pudong Shangri-La, overlooking Shanghai's historic Bund (see BW Online, 10/22/01, "At APEC, Triumphs for China -- and Especially America"). Discussion ranged from the CSRC's ongoing efforts to clean up China's securities markets to plans for launching a second board, or stock exchange. Edited excerpts from their conversation follow:

Q: Are you worried that the CSRC's efforts to clean up the markets are having a dampening effect on investor confidence and hurting the overall market?

A: We can't control investor sentiment. Investors react to [all kinds of] news, and there are obviously many factors affecting the market now. It's true that our efforts have coincided with the current slump. But I don't think our enforcement is the reason. The market has been overheated, and now there is an adjustment happening. And as securities regulators, we are not mandated or equipped to stimulate economic growth.

Q: China recently has seen a series of market scandals, with companies charged with false disclosure and misappropriation of assets. How does the CSRC plan to improve corporate governance, overcome local protectionism, and clean up China's markets?

A: It's going to be an evolutionary process, like in any other emerging market. You can't change people's mentality overnight. Our objective is a long-term one, and we'll take incremental steps. We don't have grand illusions that within a year or two we will have a totally clean market. Yes, local protectionism happens. We are trying to deal with it case by case.

Q: Are there lessons for China from the experiences the Hong Kong market has faced?

A: China has its own unique characteristics. China's market is a lot larger, and it's a developing market with a lot more complexity. It has state-owned enterprises, for example, which is not something Hong Kong has had to face.

Q: When will China launch its long-awaited second board, and what kinds of companies will be listed on it?

A: We definitely will go ahead with the second board -- but I can't tell you when. We first want to make sure that systemic risk is taken care of. The second board will have small- and medium-size growth enterprises. Obviously, it will include technology companies, but it shouldn't be closed to other industries -- for example, agriculture.

When the idea for the second board was first hatched, it was at the height of the tech boom and the U.S. market boom. At the same time, Chinese venture capitalists were some of the biggest lobbyists of the CSRC. But we're not going to make it for any one specific industry.


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