Chinese markets might be smelling bullish again in the past days as the IPO resumption was welcomed with rallying stocks, as market sentiment is picking up and trading volumes are rising.
However, China's financial markets need preemptive reform instead of post-crisis Band-Aids. The government, as well as the market, should avoid the "once on shore, one prays no more" sentiment as there is a plethora of lessons waiting to be learned from the crisis starting in mid-June. If those lessons go unlearned, the future might be less "Raging Bull" and more a matter of "Groundhog Day".
The regulator, China Securities Regulatory Commission, has generally finished investigation in over-the-counter levered trading and slammed the door on 5,754 accounts, but it is not enough to crack down on the high-risk activity that is considered the main trigger of June's cataclysm.
This, together with other measures to raise the credibility of the markets, should actually have been a preemptive step not an panic move to clean up the aftermath of the crisis. It would have spared the regulator the trouble -- and embarrassment -- of dealing with the mess if they had well played the role of an infrastructure builder, rule maker and market supervisor in normal times.
The stock market collapse this year has a lot in common with the cash crunch in the bond market in 2013: laggardly supervision in an increasingly turbulent financial market.
China's financial sector has developed rapidly with diverse institutions, complicated products, informationized trading systems, more open markets and integrated businesses. These developments challenge to the current regulation mechanism, which manages banking, securities and insurance separately and ponderously.
It's all a far cry from the proposal of the ruling Communist Party of China in late October for the country's 13th Five-year Plan, which talk about a "macro prudential financial regulation mechanism" to match the modern financial market growth.
The improved version of IPO is a laudable step by the regulator, but it is nowhere near enough. Complex domestic and international financial conditions demand a regulator ready and able to act strongly rather than one which reacts timorously.
