Justin Wolfers and Eric Zitzewitz, professors at the Stanford business school, have written a piece for the Washington Post articulating why the Pentagon’s idea to experiment with a market to assess various terrorism risks had merit.
The deadline for submitting our panel proposal for the AAS conference is fast approaching. Today I sent Mary Cooper an abstract of my paper. The AAS imposes a 250 word limit on such abstracts. My paper now runs about 70 pages and has more than 300 footnotes. After some struggle, I finally produced an abstract I felt satisfied with. But it was 289 words, not including the paper title and my name. Cutting that last 39 words was painful. Here’s how it came out:
Shareholder Litigation in the PRC: Material Disclosure about China’s Legal System?
ABSTRACT
When laws and regulations governing China’s securities markets are enacted, “investor protection” is routinely claimed as a purpose. The Supreme People’s Court invoked this customary mantra in 2003 when it unveiled rules enabling PRC investors to sue listed companies for disclosure fraud. Under the new rules, individual investors can sue to recover losses when companies have failed to provide transparency into their operations as PRC law requires. This suggests some strengthening of the PRC’s nascent civil society and legal system. However, careful analysis of the new rules and the context in which they operate reveals that many daunting obstacles confront plaintiffs. In most cases, investors will have to sue government-owned companies in government-controlled courts. In fact, they may do so only after obtaining specific government authorization. The ability of investors to struggle as a class against defendants is also significantly curtailed. Based on these constraints, it appears unlikely this form of litigation will create powerful incentives for compliance with China’s existing disclosure requirements. Indeed, the new rules may do more to protect the state’s interests rather than those of investors. In this sense, China’s approach to shareholder litigation itself makes “material disclosure” about China’s evolving legal system, revealing how the structure of PRC courts and the state’s role as an economic actor can conflict with the enforcement of individual rights through civil litigation. Such litigation thus provides a window onto the emergence of the rule of law and civil society in China and underscores ongoing tensions within PRC reform efforts.
Having compressed it this far, I told Mary that I am now going to whittle it down to a t-shirt slogan and haiku, and that I will grant her a license to the lucrative US west coast distribution rights.
Actually, the discipline of compressing a paper into a short paragraph is helpful. It forces you to focus on the core things you want to say, both in terms of your argument and the essential context of the topic. This made me recall the quip–I thought from Mark Twain–apologizing for writing a long letter because he had insufficient time to compose a short one. In a quick search for a citation to the quote, I found that people have attributed this remark to Mark Twain, Pascal, George Bernard Shaw and even Abraham Lincoln. A detailed discussion is here.
In fact, 250 words is a veritable tome compared to the sound-bite level of much public discourse, as I learned from my experience earlier this summer being interviewed by CNN. Though I thought the segment did a good job conveying the essentials of a complicated situation (a new wave of media suppression in China), it gave me a clear sense that in television, any thought not expressed in a few seconds in unlikely to get airtime.
Today I had lunch with Prof. Men Ming, director of the Center for Financial Markets and Investments at UIBE. We discussed organizing a conference on private securities litigation, an idea I broached some time ago with the Smith School executive education folks and the UIBE people working with the Smith EMBA program in Beijing. Prof. Men and I seemed to hit it off. He has been enlisted as an enthusiastic co-conspirator. This scheme may now start to pick up momentum. I have emailed him the grant proposal draft I wrote to describe the idea and seek funding for it.
Prof. Men also gave me the name of Prof. Zhang Jikang at Fudan University, also a finance professor and the deputy director of a Center for International Finance Studies. He is a foreign exchange guru, which is currently a hot topic in PRC foreign relations. I will try to meet with him next week when I am in Shanghai.
Afterwards, I went by the CSRC offices on Finance Street in western Beijing. The person I had met with before in the international cooperation department is now on maternity leave. I chatted with a deputy director of the department. He gave me a CD with information from the last “annual report” of the CSRC. He tried to be helpful, even though I dropped by unexpectedly. In terms of a conference, he said the CSRC usually only works on a government-to-government level. I explained I didn’t need them to sponsor the conference or even brand it, but that when the time comes a speaker from the CSRC might be invited (or might not…I don’t want to hear some rot about how the sange daibiao inspires their regulatory efforts…).
I’ve not been at this blogging thing for a week yet, but I am already a zealous convert. I came across an article “Scholars who Blog” from the Chronicle of Higher Ed. I imagine academics will take to this in droves. At the time the Chronicle story was written, many already had. Clearly the “early adoption” phase is over. Now creating a basic blog is as simple as using email. But the really impressive ones–in terms of content and visual appeal–are not just click, click you’re done.
I have kept a paper journal for many years. I have dozens of bound volumes, stemming back to my undergraduate days. This format is clearly more extroverted. Plus it allows hyperlinks, unlike my paper journals. One can edit, too. But I don’t feel any necessity to meticulously polish and “Bluebook” (format an array of footnotes) as legal scholarship requires. So it is a nice intermediate step between thoughts just floating in (and out!) of one’s mind and formalized publishing. I think keeping a blog will help me do more of the latter, actually. It is hard to gather the emotional energy and concentration to start a paper or article or book. But it feels effortless to fire off what seems like email to myself, albeit posted on the Web in some wild exaggeration of an “open book.” So maybe this type of writing will help me step over that shadow that falls between thought and deed (between the impulse to write and publish and the act of actually BEGINNING (and continuing, and finishing…).
Today I downloaded a Google tool bar that has a “blog this” button. I added a default “minimalist homepage” to my “site,” providing links to my departmental bio, this blog and my CV. I must post a better picture!
Tuesday I had lunch with Stephen Hsu, dean of the School of American and Comparative Law at the China University of Political Science and Law. We got to know each other back in 1998 when we were both summer associates at the same law firm. After law school, we both worked at the firm for a couple of years before coming out as academics. Like many people with academic proclivities, firm life was not for us.
We met at All the Sages Bookstore (万圣书园, Wan Sheng Shu Yuan) near the Qinghua and Beijing University campuses. First time I’d been there. A nice little bookstore. There’s an adjoining cafe, called the Thinker’s Cafe. Nice ambiance, though the “mocha” I ordered was not very good. Actually I didn’t think in the “Thinker’s Cafe.” I napped, dozing on a big overstuffed sofa. I saw another person dozing, too. Given the brutally hot weather Beijing has had lately, mid afternoon in a dark, comfortable place with ample AC created the Sleeper’s Cafe.
Then I wandered down the street (Cheng Fu Lu), finding an internet cafe. Last time I went into an internet cafe in Haidian, it was a spartan affair–concrete floors and old computers with text-based email programs. Not so today. There were rows and rows of flat-panel displays, with a boot-up program asking you if you’d like to proceed in English or Chinese (or Korean I think–there were lots of Korean students in the place, the young men playing shoot ‘em up video games and many of the young women sending email and “chatting” online (or so it seemed from my glances at their screens–God knows what all those squiggles mean). Of note, the per HOUR charge ranges, depending on the time of day, from one to six yuan–so from 12 to 70 cents per hour, basically. I have been in business centers in hotels in Beijing that have the audacity to charge nearly US 20 dollars per hour! It’s nice to see the affordable internet cafes open in Beijing again. They were closed for a long period, following a tragic fire in one cafe that killed a number of students.
Yesterday I learned that Barry Naughton has agreed to be the discussant for a panel a group of us are proposing for the next conference of the Association of Asian Studies. The participants are Mary Cooper, Stephen Green, Scott Kennedy and myself. I am excited about the panel. I’ve never been to an AAS conference before, though I joined the organization once I knew I would be leaving the firm to become a professor. For my AAS “debut”, this panel would put me in “high cotton” as we say in Alabama. It will be great fun to discuss PRC financial reforms with this group.
My other bit of good news yesterday was that I got an email from the articles editor of the Penn Journal of International Economic Law, confirming their offer on my article on PRC private securities litigation and suggesting it might be possible to get it out as soon as September. That would be sweet. I am very content with this as a placement for my first article. It is a very respectable journal, a good “foundation” for my future academic publishing. In fact, besides being a top-ranked law school, a bonus is that because Wharton is always at the very top of the lists of best business schools, I will probably get some positive spill-over effect in terms of impressing my business school colleagues (who eventually vote on my tenure).
In the “bizarre news” department, The NY Times reports today that a government plan to launch a platform for trading terrorism futures has been scrapped.
Huh? was my first reaction. The more one thinks about it, the more it sounds like a joke. But evidently this proposal was not a joke. Trading in “terrorism futures” was about to commence. However, the plug has been pulled.
The political backlash is understandable. This is a bad soundbite: “Your government is developing a system in which participants can earn money by correctly foreseeing that the president will be assassinated or that some unspeakable horror will befall you the citizens.”
But I see the rational basis of the idea. It’s essentially an application of the efficient capital markets hypothesis to information concerning terrorism. A terrorism futures “market” might efficiently gather and assimilate information to dynamically “price” various risks. Obviously, the people directing the “war on terrorism” need to understand the dynamic probabilities of various risks.
But operationalizing this sounds impossible. Who are the potential traders? Aren’t they already doing everything they can to assess risks? Surely this idea wasn’t designed to create incentives to fight terrorism! Survival seems compelling enough, without any economic mediation. Also, how would these traders get information to seek competitive advantage? If they obtained some useful information, shouldn’t they call the Pentagon rather than logging a “day trade” in terrorism futures? Also, existing problems in securities markets such as insider trading, market manipulation, irrational behavior and imperfect information could afflict this hypothetical market in terrorism futures. As the Times story noted, a terrorists might seek to manipulate the “market” to disguise their real plans. In any case, it seems the shock value of the idea is largely what did it in, not operational challenges or potential downsides.
. . . I suppose no matter how awful “trading” in terrorism futures sounds, the worse reality is that insurers and military strategists–and ultimately all of us, whether we want to “invest” or not–are playing this game “for real.”
Well, I have learned a few things. 1) The PRC censors blogspot.com. No blogs there can be seen from inside mainland China, at least not without using a proxy server. 2) With assistance from the Smith School help desk, particularly Alice Zhang who went above and beyond the call of duty, I have moved my blog to the UMD server. 3) Despite the frightening look of the HTML code on the template page, I can add links without fundamentally wrecking the page. 4) Despite my best intentions, I did become obsessed and lost a night’s sleep to learn all the above. But at least in three days’ time I have progressed, as PRC commentators often say of their country’s stock markets, from naught to something, cong wu dao you, 从无到有.
In my initial excursions in blogland I came across a number of interesting things, including a very likeable site by Ernie the Attorney. That led me to something calling itself the China Law Blog, maintained by a PRC law firm in Beijing, one that includes foreign attorneys. I also discovered China Web Log, maintained by a young Canadian China aficionado. It has a useful list of links to China-related blog sites. There I found a China-focused blog by Joseph Wang, who often posts interesting monologues to CLNET, a listserve Don Clarke established for people interested in Chinese law. I have become an active (perhaps some would say annoying) subscriber to CLNET, frequently posting snippets about PRC securities law developments and my opinions concerning them. There are only a small number of people seriously interested in this topic, but through CLNET I have managed to find some of them. One fellow is in Germany, another is getting a PhD at Cornell. There are scattered others of course, though they mostly lurk on CLNET. Over the next few years, however, the number of PRC sec reg nerds may increase, as banks make hires in their research departments because of the QFII program and the new ability, gained as part of China’s WTO accession, to establish foreign-invested joint venture fund management companies and security companies in the PRC.
. . . Well, before I become too exhilarated for having launched my blog and solved (with help) a few minor technical problems, let me contemplate this: I also have discovered the blog of Lawrence Lessig, a cyberlaw guru at Stanford. While Lessig was on vacation, he had presidential candidate and Vermont governor Howard Dean make a guest appearance on his website. Now that’s a blog! (And maybe an indication the Chinese Communist Party is right to be on guard?)
It’s a beautiful, sunny day in Beijing–one of those rare days where the sky is blue, not a hazy grey.
I will go back to the US on Aug. 9–only a couple of weeks away. I want to spend next week in Shanghai, so this is my final week in Beijing for this trip. I have several appointments to try to cram into my final few days here. I will see my friend Stephen Hsu (Xu Chuanxi) tomorrow. He’s now a dean at the China University of Political Science & Law (Zheng Fa Daxue), happy like me to have escaped big law firm life. Wednesday I am supposed to go to the Univ. of International Business & Economics (Duiwai Jingji Maoyi Daxue, or Jing Mao Daxue) (UIBE). Maryland has established an executive MBA program there. I will say hello to the people working with that and meet someone on their faculty studying finance. I would also like to visit the CSRC, meet with Guo Feng (editor of the PRC Securities Law Review), visit a few friends and former colleagues…Inevitably, I will run out of time to see everyone I’d like to see before I leave.
I have to work on this article on the Sarbanes-Oxley Act, too. Yesterday I read something on the SOA by Joel Seligman, dean of my law school and one of the leading US securities law gurus. It was apparently prepared for his comments at a corporate law symposium at the law school, an annual affair. It provided a helpful general overview of the myriad legal implications of the Enron implosion and the SOA. Some of the content about Enron was also in the presentation he made at the CSRC when he visited Beijing. Two local alumni–John Smagula, now at Temple law school, and I–accompanied him (in fact, John and I suggested and set up his CSRC visit).
This weekend I found The Bookworm, a lovely place in the San Li Tun bar area. I have tended to avoid San Li Tun. I much prefer Hou Hai. But The Bookworm is worth finding. It has an extensive “library” of English language books. Tucked deep in an alley off the north segment of the San Li Tun bar street, it is unlikely anyone will stumble across it unintentionally. The British woman running it says she plans to launch a website but hasn’t had time yet. The phone number is (8610) 6415 1954, and the email address is books@beijingbookworm.com.
I stayed there a few hours, reading Friend of China: The Myth of Rewi Alley, a study of one of the Communist sympathizers who stayed on after the revolution as a “friend of China.” When I was a student at the Princeton in Beijing Mandarin training “boot camp” a few years ago, a young caucasian man who had grown up in Beijing (and spoke perfect Chinese) gave us a talk. He was introduced as the “son of Rewi Alley.” That was my first introduction to Rewi Alley. (The son, like his father, was an apologist for the regime and identified himself as a communist…I was impressed by his Chinese, but not his political ideology). This summer I read Helen Foster Snow’s autobiography, My China Years. She discussed Rewi Alley with respect to her work with him to support industrial cooperatives (gong he, from which apparently “Geng ho” entered the English language). She painted a picture of Rewi Alley as a rugged, can-do guy, full of love for the Chinese people. While I imagine I, too, might have been sympathetic to the Communists in the 1930s-50s, in hindsight these people were tragically wrong–and I find it repulsive that they didn’t reject their early sympathy for the CCP after the horrors of the Great Leap Forward and Cultural Revolution. Anyway, I was surprised to learn from this book I ran across this weekend that Rewi Alley was a mostly closeted homosexual who never married. That discovery doesn’t make me forgive Alley’s benighted political judgments and shameless sycophantry to the changing PRC political line, but it does help me understand one additional reason (besides the plight of China and the apparent idealism of the CCP in the early days) that he might have been inclined to embrace a revolutionary ideology and elected to live permanently in China. Inexplicably, though, the CCP program, according to this book, was less tolerant of homosexuality than traditional Chinese culture.
Don Clarke, one of the leading US scholars of Chinese law, told me about The Bookworm. He told me they might have copies of Privatizing China: The Stock Markets and their Role in Corporate Reform, the new book by Carl Walter and Fraser Howie. Fraser gave a reading at the Bookworm a few weeks ago. This book is a “new edition” (though with a different publisher and under and different title) of To Get Rich is Glorious: China’s Stock Markets in the ’80s and 90s. Any book about PRC stock markets naturally gets my attention. I have had a copy on order with Amazon for weeks and weeks, but apparently the new edition is not shipping in the US yet. Though I had already managed to find a copy at the Lufthansa Center (and also have seen copies in the lobby shop of the Kapinski Hotel), I am glad I sought out this little Bookworm place anyway.
Privatizing China is an indispensable resource for those interested in PRC securities markets. China’s Stockmarket : A guide to its Progress, Players and Prospects by the UK’s Stephen Green was also just published in the last few months. It also provides a wealth of information. I haven’t found anything better in English (and not in Chinese, either, come to think of it), to provide a cogent and up-to-date overview of PRC securities markets than these two books. I plan to write a review of these two books once I get back to the US. Anybody interested in this area should buy and study both of them.
Finding the site blogger.com and creating through it this blog was easy. However, transferring the blog to the server at the business school where I teach has proven difficult. Using WS_FTP and my laptop here in Beijing (connected to the net through a wireless GSRP connection, which I adore), I have been able to upload other HTML documents to my “space” on the Smith School server. Last night I revised my CV and successfully posted it. Thus, the problem transferring this blog from blogger.com may stem from security features on the Smith School site. Some Smith School instructions on creating a faculty web page note that for security reasons one cannot transfer files to the server through FrontPage. Perhaps the same applies to a transfer from blogger.com to the server. I have sent an email to the help desk, asking for advice.
Meanwhile, I have leaned more about the blogging phenomenon. Another Maryland professor, whom I learned about in searching for technical support on the Maryland website, is an expert on this phenomenon (and maintains a beautiful site). From his pages, I learned about MoveableType. I may experiment with that later.
But not now. After all, my hope was that this experiment with blogging will aid my research into PRC securities law. I would like to avoid the common computer phenomenon in which the effort required to learn how to use a new tool overwhelms the project that one originally hoped to facilitate through use of the tool. I have spent many, many hours of my life on that treadmill. I have probably spent more time learning to use “mail merge” features than I have ever saved from actually using such “time saving” devices.
Actually, though solving technical problems can be tedious and frustrating, this danger of spending too much of my time and energy on technical issues rather than “substantive” problems exists partly because solving technical problems and acquiring new technical knowledge can be fun. One can get a certain sense of power and satisfaction from solving problems and knowing how to make things work (and, frankly, sometimes there is satisfaction in feeling that you know more than others). Such positive feelings–a sense of capability, effectiveness, even potency–from solving technical problems must be part of what stimulates the constant, rapid evolution of computing…people, perhaps men especially, like those feelings. Of course, the potential reward of riches is also important, but the sheer mental and emotional delights I mention are undoubtedly another part of the story.
Whatever the reasons, I know I can obsess on technical problems. And I also know from past experience that often the rewards of solving technical problems are that 1) you become the “resident expert” and are asked to provide support to others (for example, I imprudently fired off an email asking my accomplished UMD colleague for help with my newbie blogger problem) and 2) you get a stream of new problems to solve–one mountain range appears after another. Whatever psychic satisfaction it might afford, becoming an HTML/FTP/blogging guru will not substantially help me get tenure. So I will try to stay focused on the research itself, not the ancillary tools. Thankfully, I do enjoy the research itself (For some of the same reasons? Yes, probably). For the ancillary technical aspects, I will try to adopt an attitude of gradualism, “man man lai” as the Chinese say. But hewing to my agenda will be a challenge and runs counter to the powerful temptation to plunge into this new area wholeheartedly.
Another distraction from my PRC sec reg research–and an additional reason to avoid the temptation to become an aficionado of blogger tech issues–is that I have agreed to collaborate with a colleague on an article about some aspects of the US Sarbanes-Oxley legislation (and the SEC rulemaking hereunder). The annual conference of the association of business school law professors is immanent, so a deadline for that work looms. This morning I read an article by my former securities law teacher Robert Thompson, from the Houston Law Review. It is a succinct general overview, mapping out how there was a response to Enron and related scandals at the level of federal legislation, SEC rulemaking, self-regulatory organizations (specifically, the NYSE and NASDAQ), but that the response of state law–the traditional basis of US corporate law–has been mute, with the federal response encroaching on both state law and private ordering.
China of course does not have a federal system. Corporitization and securities issuing seems to have emerged spontaneously early in the reform era, with some local legislation following. But the central government stepped in, and now no meaningful regulation is passed at the local level, so far as I know. In fact, there is no meaningful competition among so-called self-regulatory organizations (SROs). The Shanghai and Shenzhen exchanges are appendages of the central regulatory structure, and it appears that the Securities Association of China also functions essentially in this way. They just released, for example, rules on the tests that will be given to qualify people as securities industry workers. Article 4 of the regulations acknowledges the work of preparing these exams and managing the process of administering them will be done subject to CSRC leadership. The CSRC also has power to approve the CSA’s work regarding the content of the exams. While there are areas of US regulation in which SROs regulate subject to federal sanction, in China this does not seem to be a bottom-up self regulatory movement capped by govt. approval so much as government delegating the work of certain regulatory areas to “self regulated” organizations while power remains with the central authorities, traceable ultimately of course to the Party. A paper on SROs in the PRC securities sector is on my agenda. God knows when I’ll get to it. First, I must work on Sarbanes-Oxley.
This is the first entry in my experiment with blogging. What an off-putting sound “blog” is. But the idea of having an electronic scrapbook to chronicle my research is appealing.
Currently my research focuses on the regulation of PRC securities markets. Specifically, I am now writing about private securities litigation (PSL) in China. The PRC Supreme People’s Court unveiled rules on this topic on Jan. 9, 2003 (the PSL Rules). The People’s Daily has a site collecting a number of relevant newspaper articles.
Well, I ought to try to post this before I get carried away.
