Tea Leaf Nation

Meet the Man Chinese Stock Investors Love to Hate

Securities regulator Xiao Gang helped inflate China’s latest bubble with bold talk. Now he’s become the nation’s punching bag.

Xiao Gang Getty Cover

In the past three weeks, China has experienced a stock market free-fall that’s depleted nest-eggs, crushed dreams of timely retirement, and sent central authorities scrambling to exert control. And Chinese Internet users think they know who’s at fault.

He’s the one who, to hear a web user tell it, “bears all the responsibility for this disaster, for destroying China’s stock market, and for breaking the Chinese economy.” He’s been called “trash” and a “running dog.” Online, many are calling for his resignation, others insist that he be fired out right, or that government authorities investigate him for unspecified crimes. They insult his mother, call for the arrest of his son for illegal short-selling, and have even urged him to kill himself. In excoriating him, some won’t deign to use his name. Instead they call him Xiao Rectum, an appellation which rhymes with his given name. He is Xiao Gang, China’s chief securities regulator, who, at this moment, appears to be the most reviled man in Chinese cyberspace.

Xiao likely never expected to become a public scapegoat when he assumed the chairmanship of the Chinese Securities and Regulatory Commission in March, 2013 after a stint as chairman of Bank of China, Ltd. that most observers considered successful. Xiao joined the CSRC as part of a then-new administration under President Xi Jinping and Premier Li Keqiang, one eager at the time to devolve more power to the markets and away from the traditionally heavy hand of the government. When Xiao began his tenure, Chinese stock markets were relatively moribund; by spring 2015, they were dominating headlines as part of a tear that saw the benchmark Shanghai Composite Index swell by nearly 60 percent in the six months ending June 12. But unfortunately for investors — and for Xiao’s reputation among them — stock values then fell off a cliff, with the Shanghai Index having lost 28 percent of its value since, wiping out trillions of dollars worth of paper wealth in the process.

And this is what has made Xiao the man Chinese Internet users love to hate. The CSRC used to be a non-entity on Weibo, a Twitter-like platform in China and the closest the country has to a digital public square. But under Xiao, the CSRC’s Weibo presence has gone from just another sleepy, government-backed account eliciting little fanfare to a favorite gathering place for jilted investors. In recent weeks, each fresh announcement from the beleaguered regulator has been greeted with howls of derision, often in the form of vicious comments directed squarely at Xiao.

A July 8 post provides an apt example. In the wake of a massive sell-off that left the Shanghai Index 5.9 percent lower for the day, the CSRC announced that high-level managers, board members, and major investors in a given company would be banned from selling that company’s shares for six months and that “severe punishment” awaited those who flouted the rules. In an odd bit of wording, the announcement called the latest stock market drop “unreasonable.”

The dictat was an obvious effort to halt the price plunge, but it hit social media with a thud. Out of thousands of responses on Weibo, the most popular called the regulator “Xiao Dog” and urged him to quit. Predictably, many commenters asked the CSRC to spell out what rendered a drop “unreasonable” and to distinguish it from a healthy correction. One popular response complained that CSRC’s response had already been “too slow, in the bureaucratic style” and that there had been “seemingly no reforms this year” beyond government efforts to prop up prices. The user lamented, “The people managing the markets don’t understand markets.”

Even a very good day for stock markets isn’t enough to save Xiao from the outraged Internet hordes. On July 9, a day which saw the Shanghai Index rise by 5.7 percent, a CSRC post about an unrelated meeting held by Premier Li elicited more comments demanding Xiao vacate his post. “It’s not good for the country to change [leaders] during volatility, but after stocks stabilize, Xiao Gang must resign!” read one popular comment. Another popular reaction insisted the brief rise happened “because the New York system was broken,” in reference to the New York Stock Exchange’s reported technical glitch that halted trading earlier in the day. “Otherwise, they’d have fallen again — the useless Xiao Gang must go.” Although Chinese social media is closely monitored and content considered politically sensitive is censored, very few comments excoriating Xiao have been quashed.

To some extent, Xiao is just another piñata for investors looking to blame anyone for their recent losses, from U.S. billionaire George Soros to Goldman Sachs to the United States Federal Reserve. Xiao’s job, after all, is to ensure the integrity and smooth functioning of markets, not to vouchsafe their continued rise. But Xiao also bears some responsibility for codifying and broadcasting the unhelpful notion, now widely held, that short-term stock performance somehow constitutes a reflection of the ruling Communist Party’s long-term performance in implementing deep and potentially painful economic reforms.

Xiao’s role in blowing air into China’s stock bubble traces to remarks first reported on March 11, 2015, by China Central Television, where Xiao picked up on a concept occasionally bandied about in Chinese media in late 2014: that of a “reform bull,” meaning a rising stock market driven by the strength of Chinese economic reforms. Xiao said then he “applauded the concept” because he felt that “this round of rising stock prices reflects an expectation of a bonus from Reform and Opening,” a program of economic liberalization that began in earnest in the early 1990s. In remarks at once bureaucratically hedged and breathlessly — even irresponsibly — optimistic, Xiao said that rising prices “had some inevitability and some reasonableness.” A report days later in Securities Times interpreted Xiao’s remarks as having “agreed to” the term. Xiao reportedly repeated his endorsement of the “reform bull” concept on June 12 in a speech at the Central Party School, the day on which the stock market peaked.

Of course, Xiao might have been saying what he thought party leaders wanted him to say — or what they told him to say. In e-mailed remarks to Foreign Policy, Chen Zhiwu, a professor of finance at the Yale School of Management who sits on the CSRC’s International Advisory Board, acknowledged “tactical mistakes” by the regulator in recent weeks as it “over-reacted” to the market drop with “too many rule changes.” But Chen defended Xiao, insisting that “Chinese investors have treated [Xiao] unfairly.” Chen said that to his knowledge, the CSRC has been “on the front executing orders and instructions from higher up” in the central government, acting as a mere “policy instrument” instead of a neutral regulator, repeatedly ordered to retreat from statements intended to throw cold water on investor exuberance.

And Chinese state media has certainly played the largest role in riling animal spirits and issued several earlier, frothy proclamations that predated Xiao’s remarks. In late August 2014, with the Shanghai Index still at a comparatively anemic 2,201, state news agency Xinhua helped kick off the rally when it urged a “quality bull market.” On April 21, with the index then at 4,293, state mouthpiece People’s Daily issued an article titled, “4,000 Is Just the Starting Point for a Bull Market in A Shares,” the type of shares a Chinese citizen can own. It was not an editorial, but like all Daily articles, it carried the implicit imprimatur of party approval. The market would gain another 20 percent thereafter before plummeting back to earth.

Taken together, statements from state media outlets and leaders like Xiao have not just helped build investor expectations that the government would “save the market” when needed. By negative implication, they have made a large drop in the markets look like a failure in governance, rather than the re-discovery of rational prices. Chinese authorities have obliged this notion, which plays to their own hubris, by rolling out measure upon measure intended to reverse the latest swoon, gambling more and more political capital to chase after already-lost prestige.

Although comments critical of Xiao are legion, so are (uncensored) complaints that veer dangerously close to criticizing other more powerful leaders by name. “Stocks aren’t something for common people to play around with,” concluded one web user in the wake of the July 8 prohibition on sales by big shareholders. People with connections and inside knowledge “buy low and sell high, while [average people] buy high and sell low. It’s not that we’re stupid or naive,” wrote the investor, perhaps referring to the millions of investors in their 20s, or the millions more who have entered the market without the benefit of a high school education. “But we can’t escape the exploitative crush, with expensive goods, expensive housing, poisonous food — I don’t even have the heart to talk about vacation, health insurance, student scholarships. Every time we try to do anything, [the elites] make things difficult at every turn.”

Xiao Gang may have had the best intentions when he first tried to wake the Chinese stock market from its doldrums. The Wall Street Journal reports that Xiao “has worked nearly around the clock” in recent weeks and was recently seen “eating alone in the empty cafeteria at the regulator” one evening. His head of hair, once jet black, now shows grey. Still, he’s unlikely to find much sympathy close to home.

“Xiao Gang, you may live a long life,” one user wrote on July 8. “But there will be many investors waiting for you in hell.”

Bethany Allen-Ebrahimian contributed research.

This article has been updated to include a quote from Chen Zhiwu.

Photo credit: Getty Images

David Wertime is a senior editor at Foreign Policy, where he manages its China section, Tea Leaf Nation. In 2011, he co-founded Tea Leaf Nation as a private company translating and analyzing Chinese social media, which the FP Group acquired in September 2013. David has since created two new miniseries and launched FP’s Chinese-language service. His culture-bridging work has been profiled in books including The Athena Doctrine and Digital Cosmopolitans and magazines including Psychology Today. David frequently discusses China on television and radio and has testified before the U.S.-China Economic and Security Review Commission. In his spare time, David is an avid marathon runner, a kitchen volunteer at So Others Might Eat, and an expert mentor at 1776, a Washington, D.C.-based incubator and seed fund. Originally from Jenkintown, Pennsylvania, David is a proud returned Peace Corps volunteer. He holds an English degree from Yale University and a law degree from Harvard University. @dwertime

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