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 By summer 2015, China's Securities Regulatory Commission (CSRC)
needed them more than ever; a year-long market boom had imploded in
a few weeks, and the government was desperate to keep the crisis
from widening.
But the best and brightest returnees, known in China as "sea
turtles", had already left for the private sector, disillusioned and
disappointed.
A former official at the CSRC, one of a group of 20 high-profile
returnees, recalled the CSRC's appeal to make "sacrifices for the
motherland".
"We moved our families back to China and gave up high-paying jobs,
because we wanted to contribute," he said.
He said the group was sent for special training at Jinggangshan, a
former revolutionary base used by Mao Zedong during the Chinese
civil war.
Their idealism soon turned to cynicism. Their pay was a fraction of
what they could earn in the private sector, and the CSRC didn't seem
to value them.
"Several years passed, and none of us got promoted," said the
official. "Some of us didn't even obtain a concrete position."
"Just at the time they needed people with both domestic and
international experience, those most internationally experienced
people were forced out," said Liu Li-Gang, China economist at ANZ.
The CSRC did not reply to requests for comment.
BRAIN DRAIN
Those who left include Tang Xiaodong, former head of ABN AMRO's
exotic credit derivatives, who served various roles at CSRC
including driving reforms to foreign investor access programs; Li
Bingtao from J.P. Morgan Chase's global treasury department, who
joined the CSRC planning committee; and Luo Dengpan, former student
of Nobel Prize-winning economist Robert Shiller, who took charge of
CSRC's institutional innovation department.
None of them replied to requests for comment.
Insiders who spoke to Reuters point to a rising wave of resignations
within the regulatory apparatus over the last 12 months, just when
sound advice was most needed.
"Nearly every week, there are people submitting resignation
letters," said an official at the Shanghai Stock Exchange. "And the
pace of people leaving appears to be accelerating."
Chinese fund managers say the exodus left Chinese markets in the
hands of people who don't understand markets.
"They don't have the same level of expertise as they did in recent
years," said a senior Chinese derivatives trader at a foreign bank
in Hong Kong.
That led, he said, to misguided, counter-productive policies like
the crackdown on derivatives and "malicious" short-selling that some
say only accelerated the selloff.
"It's not that they aren't smart," said an executive at a major fund
who communicates regularly with the CSRC. "The difference is they
don't have financial expertise."
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An official still at the CSRC said regulators failed to grasp the
significance of the surge in margin finance used for stock
speculation that many warned was destabilizing the markets.
It's also criticized for botching reform of the IPO market. It
re-opened the market in early 2014 after a year's suspension, but
under new pricing guidelines that inadvertently made IPOs a one-way
bet that sucked funds from the wider market. After a surge in summer
IPOs was partly blamed for setting off the crash, the CSRC suspended
them again, indefinitely.
CATALOG OF FAILURES
Such failures have hammered government's credibility, not least with
investors who trusted Beijing to rescue the market in July and
bought back in.
Government directed 900 billion yuan ($140 billion) into stocks, but
indexes continued to fall after a brief hiatus, wiping out all the
year's gains, and more than $4.5 trillion in market value - more
than Germany's gross domestic product.
The heavy-handed intervention also damaged the credibility of
China's public commitment to financial reform.
Analysts were not surprised when global stock index compiler MSCI
delayed including Chinese shares in its benchmark emerging markets
index, a move that might have brought billions of foreign dollars to
China's markets.
Former officials said most of the returnees left due to frustration
over their lack of influence over policy, limited opportunities for
promotion, and low pay. Others spoke of resentment from colleagues.
Some were effectively forced out by the fallout from Beijing's
anti-corruption drive, which led to salary cuts for senior staff and
a campaign against "naked officials" - those who move family members
and assets overseas in case the official is arrested.
"They can get high pay outside at lower risk, higher return. Why
not?" said Oliver Rui, professor of finance at the China Europe
International Business School in Shanghai.
(Additional reporting by Kevin Yao in Beijing, Saikat Chatterjee in
Hong Kong and the Shanghai and Beijing newsrooms; Writing by Pete
Sweeney; Editing by Will Waterman)
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