THE Shanghai stock market tumbled 1.68 percent on March 18 following a reshuffle that elevated Xiao Gang, the former head of the Bank of China, to the chairmanship of China's top securities regulator, replacing Guo Shuqing, who has been appointed acting governor of Shandong Province.

The leadership change at the China Securities Regulatory Commission has created uncertainty among investors, who question Xiao's commitment to the agenda of reforms promised by Guo.

"Guo's zeal to promote innovation and market-based measures did give us some glimmer of hope, but now his departure shades that hope," said one comment on Weibo, China's version of Twitter.

"Reforms that Guo has proposed may come to a dead end if the new leader does not follow in Guo's footsteps," said another comment on the popular website.

Dubbed a reformist, Guo had been busy trying to recast the regulatory environment of China's securities market with what were viewed as bold attacks on financial fraud and a commitment for further market deregulation.

During his 17 months in office, Guo signed more than 70 sets of measures to crack down on false disclosure, eliminate insider trading, remove underperforming companies, encourage listed firms to pay cash dividends and expand investment channels for foreign investors.

Long-term view

Although the Shanghai index experienced a 7.8 percent decline during his tenure, Guo won praise for his long-term view of enduring market reform.

"Despite his short tenure, Guo had a profound impact on China's financial environment," said Chen Zhiwu, professor of finance at Yale University's School of Management. "He introduced measures to advance deregulation and boost innovation and competition in the market."

Liu Jipeng, director with the capital research center of the China University of Political Sciences and Law, said Guo paved the way for the healthy development of China's securities market.

In contrast to Guo's quick and outspoken style, Xiao, 55, is viewed as cautious and low-key.

"We will ensure policy continuity and stability while keeping carrying out tasks introduced at the beginning of this year," Xiao was quoted by a CSRC spokesman as saying two weeks after his appointment. That was his first and the only public comment since taking office.

During his 10-year tenure at the Bank of China, Xiao took the lead in a massive restructuring of the state-owned lender, turning it into a commercial bank with a stable shareholding structure and an independent decision-making mechanism. Under his stewardship, the country's fourth-largest bank by assets reduced its percentage of non-performing assets and went public on the Shanghai and Hong Kong exchanges in 2006.

When he served as deputy governor of the People's Bank of China, the central bank, from 1998 to 2003, Xiao participated in the enactment of China's first trust law.

"Given his history, Xiao is largely expected to prioritize quality enforcement and industry standardization," investment consultancy Z-Ben Advisors said.

Xiao's first act in new position did seem to take aim at market irregularities.

During his first week in office, the commission issued investigation notices to three listed firms suspected of having released false and misleading information, and reported five cases involving insider trading.

That seemed to send the message that Xiao will follow the policy initiatives of his predecessor, who pledged "zero tolerance" toward market manipulators.

One of the nettling problems facing Xiao is how to deal with an initial public offering market that has been frozen since October.

IPO reports

The leadership transition came in the middle of a campaign requiring IPO applicants to examine their financial documents and submit reports before the end of March. The effort is aimed at cracking down on false disclosures and profit manipulation.

Now the CSRC has moved into the second phrase of the campaign, conducting selective checks on those reports. The number of companies waiting for a green light to go public on China's stock exchanges remained at 615 at the beginning of this month. There is no official word on when IPOs may be resumed.

"It is like the sword of Damocles hanging over us," said Jack Lu, a bank teller with seven years of share trading experience. He, like others, worries that new issues coming to market will only add downward pressure on share prices.

The Shanghai Composite Index has been hovering near this year's low amid the IPO uncertainty.

Investors had been speculating that the reboot of IPOs would come after Xiao took the office. An online survey by Sina.com found that 72 percent of 13,162 respondents believed Xiao would accelerate the resumption of companies going public.

There is an ongoing debate about the best timing for restarting IPOs. Some say the new offerings should be stalled until the market turns more bullish, while others argue that the timing doesn't matter that much since stock prices have hit a bottom and won't decline further.

Financial columnist Pi Haizhou shrugged off the debate.

"There is no such thing as a best time," he said. "As long as the current IPO approval system is maintained, there will be inevitable problems, such as groomed corporate profiles and bombastic performances, whenever IPOs are restarted."

The price of new shares in China is decided by underwriters, major stakeholders and brokerages, who all stand to benefit from the highest possible IPO price. In many cases, new shares hit the market with stunning first-day gains, only to turn into a downward spiral once IPO insiders have grabbed their profits and run. Individual investors are left holding the bag.

Former chairman Guo tried to temper that trend by requiring IPO applicants with price-to-earnings ratios of 25 percent higher than their listed industry peers to explain their pricing and disclose possible risks to investors.

However, Dong Dengxin, the head of the Finance and Securities Institute at Wuhan University of Science and Technology, said the effort only pecked at fragments of the problem but didn't tackle the underling flaws in the system.

Can Xiao orchestrate a radical change? "To deepen reforms in the IPO approval system will be a crucial part of Xiao's job and will also be a determining factor in evaluating his performance," said Su Peike, chief researcher on public policy at the University of International Business and Economics. "I hope Xiao will address the root issues and develop a more market-oriented system."