Walter Hutchens’ Blog

The crew at Crooked Timber has a good discussion on issues raised by the Kristof column I mentioned earlier.

How nifty! This site displays lists of DC bloggers based on which Metro station you point towards.

The list is now manageable, but one can foresee that this map will be over-populated as blogging becomes more common (we are long past the early adoption stage if even I am doing it!). I mean, a map of “people with email accounts” or “people and organizations with web pages” would be useful perhaps for aggregate information but not on a particularized level. The category “people who blog” could become just as unwieldy. But I suppose not everyone will become as prolix as some of us. Still, this is DC, home of the chattering classes.

One can imagine lots of other fun maps of this sort. “People with navel rings,” “artists working in pastels,” etc.

The existing map underscores the reality of the “digital divide,” too.

A provocative opinion piece by Nick Kristof appears today in the Times, comparing development in rural China and Ukraine since 1989, noting China’s economic progress without political reform in contrast to greater political freedom in the Ukraine without economic progress. Kristoff is of course not the first to note this challenge to liberal assumptions, but he encapsulates it well.

The Kristof and Wudunn book China Wakes helped stimulate my interest back when I was at Apple, thinking about going to grad school to convert my interest in China into a professional direction.

I love the net. It changes life in so many marvelous ways. Not only can I read the daily Chinese financial press from my couch in the Washington, D.C., area, but I can communicate and shop so easily, allowing me to do things (with others) that I would not otherwise do.

This blog is an example. I am gradually learning a little baby talk HTML–today is the first time I’ve used a blockquote, which is not a tag Blogger provides. I still want to add comment and search features to this. But no HTML knowledge was required to start publishing. The basic act almost literally requires only a few clicks. The “distance” between the impulse to jot a (public) note and actually doing so is so “short” that it is negligible . . . there is no barrier . . . the impulse becomes the act, rather than getting sidetracked by some intervening “transaction cost.”

Besides blogging, this is evident in email….I sent my Mother less than a dozen cards or letters when I was in college, but now I can zap her a photo or note so easily, thanks to the availability of networking and software. We communicate more.

Thus, with such low barriers to doing it, my notes & asides on PRC securities market regulation are available to anyone who would be inclined to look at them–a small audience, of course–but that’s another part of the magic of the net. People sharing specialized interests can find each other and communicate.

A few more examples in praise of the net, besides blogging and email, are these:

1. Through the “feedback” mechanism on their webpage, I sent a note to Bloomberg, commenting that Goldman Sachs cannot, as their story seemed to suggest, set up a joint venture investment bank with a PRC individual. I would never have gotten around to doing that if I’d had to write a “formal” letter, print it, apply postage and mail it. Lacking a secretary to hand a Dictaphone tape to, it simply wouldn’t have happened. But the web form made it easy. To my surprise, I even got an answer, apparently from a journalist who’d written the story, as follows:

Feedback Status:
TicketID: W00074810110368590546
Status: Resolved
Summary: story on Goldman on PRC JV in investment banking

LOG: 8/28/03 02:15:46 Your Initial Feedback
URL : http://quote.bloomberg.com/apps/news?pid=10000080&sid=al90q9zugTKw&refer=a sia
Good story–both the background and the scoop, but the PRC rules on foreign investment in securities companies, promulgated by the CSRC, require that the PRC partner be either a trust and investment company or a PRC securities company, so Goldman could not establish a JV “with Fang Fenglei” as the story describes. No matter how much industry experience or money he has, he’s not, absent some extraordinary approval, qualified to establish a FI-SC with Goldman. Regards, Walter Hutchens Smith School of Business Univ. of Maryland

LOG: 8/29/03 08:17:47 Bloomberg Feedback Team
hi, firstly, Fang was helping to form the venture with Goldman, but he’s not expected to invest into the venture, which we understand will involve a local securities firm. We didn’t specify that in story becos talks about buying that unamed local firm is still very preliminary…but i agreed we should make that clearer..we only said in story that Goldman is allowed to take a maximum of one-third stake in the local venture without specifying there will be a local partner involve. Thank you for your comments. Sincerely, Cathy Kit Ching Chan, Hong Kong

—-
I wrote again:

Thanks for your response! By the way, as you probably know, the limit on the % of foreign ownership in these foreign invested securities companies and foreign invested fund management companies (which are more common) will go up to 49% in a few years, per the WTO accession agreement. Meanwhile, people may be able to negotiate control-like provisions even if they hold less than a majority of the capital of these ventures.

2. I had something like this happen a while back when I told Merrian Webster that their explanation in the Word a Day email they distribute was wrong with respect to the description of the Chinese language origin of a word. They, too, responded, as follows:

The Word of the Day for Mar 28 is:
cumshaw \KUM-shaw\ noun

: present, gratuity; also : bribe, payoff

Example sentence:
“There are now strict rules against payoffs, and senior managers must sign monthly statements that all sales have been made . . . ‘with no cumshaw whatsoever.’” (Louis Kraar, Fortune , October 1977)

Did you know?
It was probably British Navy personnel who first picked up “cumshaw” in Chinese ports, during the First Opium War of 1839-42. “Cumshaw” is from a word that means “grateful thanks” in the dialect of Xiamen, a port in southeast China. (Rendered “kam siā” in the Pinyin system of romanizing Chinese words, it’s still a common expression used by about one billion Chinese to show grateful thankfulness.) Apparently, sailors heard it from the beggars who hung around the ports, and mistook it as the word for a handout. Since then, U.S. sailors have given “cumshaw” its own unique application, for something obtained through unofficial means (whether deviously or simply ingeniously). Outside of naval circles, meanings of “cumshaw” range from a harmless gratuity to bending the rules a little to outright bribery.

*Indicates the sense illustrated in the example sentence.

—–Walter Hutchens/Bmgt wrote: —–
From: Walter Hutchens [mailto:whutchens@rhsmith.umd.edu]
Sent: Wednesday, April 02, 2003 8:58 PM
To: wodsupport@merriam-webster.com
Subject: error alert

I enjoy Word of the Day. But I wanted to alert you to some errors in a recent distribution. The gloss on “cumshaw” recently opined that:

“Cumshaw” is from a word that means “grateful thanks” in the dialect of
Xiamen, a port in southeast China. (Rendered “kam sià” in the Pinyin system
of romanizing Chinese words, it’s still a common expression used by about
one billion Chinese to show grateful thankfulness.)

Actually, “kam sia” is NOT Pinyin. Neither “Kam” nor “Sia” are sounds in Mandarin Chinese which pinyin romanizes.

“Kam sia” is also not a recognizable form of “a common expression used by about one billion Chinese to show grateful thankfulness.”

I believe Kam Sia must be an expression in Cantonese, the version of
Chinese spoken in Hong Kong and parts of southern China.

I used to practice law in China and now research Chinese legal developments. As a Mandarin speaker, these errors lept out at me. I strongly urge you to correct them in the source material before it is further published or distributed.

Regards,

Walter Hutchens

—–”Deanna Chiasson” wrote: —–

Dear Prof. Hutchens:

You are of course correct. Our identification of “kam sia” as Pinyin was wrong–but also inadvertent. We somehow managed to bestow Pinyin to “kam sia” rather than to the city name Xiamen (in our Geographical Dictionary we give both the Pinyin and Wade-Giles forms of place-name transliteration). It turns out that the rendering “kam sia” in our dictionary is less than ideal, in any case. Apparently it was adoptedfrom the Oxford English Dictionary which cites it as “according to Giles.” Our own Chinese scholar, James Rader, has since set us straight on transliteration systems and Chinese dialects. The dialect of Xiamen, he tells us, is a subdialect of the Minnan dialect complex.
Minnan dialects are spoken throughout southern Fujiang province, as
well as by the Taiwanese, and by millions of diaspora Chinese. Mr. Rader further tells us that he would prefer to use “gamsia” (with a hacek on the first “a” and a circumflex on the second “a”) as the transliteration of the Minnan word that gave us “cumshaw,” and he intends to incorporate this change into our dictionary entry in the future. He also tells us that the Mandarin cognate of “gamsia” is “ganxie” (with a hacek on the “a” and a grave accent on the “e”) and the Cantonese cognate is “gaamjeh” (with an acute accent on the first “a”). It may be these similarities which prompted one Chinese correspondent to write and tell us that “cumshaw” is “a very common and decent expression used by about one billion Chinese” to show gratitude (and not just used by beggars in ports). We would have been, I suppose, more accurate to say “millions.” In the end, we have decided it best to simply delete the entire parenthetical.

We certainly do appreciate your writing to us.

Sincerely,

Deanna Chiasson
Editorial Department
Merriam-Webster, Inc.
47 Federal St. P.O. Box 281
Springfield MA 01102
Phone: 413-734-3134
E-mail dchiasson@Merriam-Webster.com

Visit us online at http://www.Merriam-Webster.com
http://www.WordCentral.com for kids

To: “Deanna Chiasson”
From: Walter Hutchens/Bmgt
Date: 04/04/2003 11:36AM
Subject: Re: error alert

Thanks for this follow-up and detailed explanation. Yes, “gan xie” is both Pinyin and a common expression for thanks in Mandarin.

Best wishes,
Walter Hutchens

2. Today I found “bigzoo.com” and bought some long distance phone service. I called a friend in Beijing for U.S. TWO CENTS a minute! Compare this to the US$ 4.91 AT&T extorted from me when I used my mom’s standard residential service. I might or might not have found out about and bought a literal card from “BigZoo” or switched my home phone service, but buying a $20 card online was a low threshold. Now that I know the service is clear, cheap and the web page great, I will use it again. (Competition, like the Internet, is a lovely thing for the consumer!).

Bloomberg had a story yesterday reporting that Goldman Sachs may establish a foreign-invested securities company in the PRC. The story suggest it would be with Fang Fenglei, a leading PRC investment banker. However, under the FI-SC rules, the Chinese partner in a FI-SC must be a PRC securities company or trust and investment company. An individual would not work. Thus, Goldman could not establish a JV “with Fang Fenglei” as the story describes. No matter how much industry experience or money he has, he is not, absent some extraordinary approval, qualified to establish a FI-SC with Goldman.

The IPO of Huaxia bank, the fifth bank to list in China, is the big news this week from PRC stock markets.

The Washington Post had a story a couple of days ago cataloging recent activity by reformists and the push back from Jiang Zemin’s allies, including a current effort to suppress discussion of political & constitutional reform.

News stories have appeared (see, e.g., here) about the commencement of the trial in the shareholder litigation against Daqing Lianyi. Xuan Weihua is the plaintiffs’ lawyer. She has also written a book on PRC private securities litigation and clearly has a self-promotional, marketing flair. I imagine she will be a formidable advocate for her clients.

Of note, the underwriter is also a defendant in some of these suits.

New media reports note that the CSRC says the reports about a decrease in the number of securities trading accounts in China were incorrect.

PRC media today report that Ping Henian, head of the legal division of the CSRC, has said that the CSRC, Ministry of Commerce, State-Owned Assets Administration and Supervision Commission and Ministry of Finance are working on implementing regulations for the November 2002 Notice Concerning Issues Related to the Transfer of State Owned Shares and Legal Person Shares to Foreign Investors, and the two stock exchanges are soon to produce trading regulations for unlisted shares of listed companies.

According to new statistics from the CSRC, the number of securities accounts in China decreased by almost a million last month.

The aggregate number of securities accounts–almost 70 million–is often cited as a metric for the rapid growth of China’s stock markets. As both of the new books (Green and Walter/Howie) on China’s stock markets detail, this number is wildly misleading. The number of overall participants is probably not even 10% of this figure. It falls in half immediately because an investor would have to open an account for each of the Shenzhen and in Shanghai exchanges, then many accounts are dormant or active only for IPO subscriptions, and many investors open multiple accounts (illegally using the ID’s of others). Then, on the other hand, some single accounts are actually for underground funds and so represent multiple investors.

At any rate, this rapid decline is curious. It could signal that people are withdrawing from the markets, shunning them.

Here’s a report on remarks of CSRC chairman Shang Fulin at a meeting in Shanghai. The official in charge of the listed companies supervision dept. of the CSRC also gave a speech at the conference.

An interesting article from FinanceAsia.com describes the grim situation of China’s stock markets and the predicaments faced by their regulators.

Another story quotes Cheng Siwei, an important NPC figure (though he said he was speaking as a “scholar”), opining on four principles that ought to be followed in capital market development. The first one is that stock market development should observe socialist principles. I stopped reading after that, though Dow Jones reported Cheng touted establishing a high-tech section of the Shenzhen exchange.

The Shanghai Stock Exchange has new regs on large transactions.

New regs today from the State Administration of Foreign Exchange.

FinanceAsia.com also has a commentary on the RMB revaluation issue.

One of the QFIIs will purchase shares in one of the PRC’s handful of open-ended funds, according to a Xinhua story. Being units of a mutual fund, such an investment could be liquidated at any time, returning to the QFII the relevant proportion of the net value of the underlying assets. But the QFII funds (once the mutual fund investment was liquidated) would still be subject to exit restrictions under the QFII rules, so that buying shares in a fund won’t allow a QFII to dump PRC shares and instantly yank their money out of the country. One issue is how QFIIs who purchase funds will calculate their ownership in particular companies. There is a limit in the QFII regs on how much of a particular listed company a single QFII (and all QFIIs in the aggregate) may hold. Presumably the percentage held indirectly through funds would have to be added to the total. This could be logistically challenging.

Another story reports Goldman has gotten SAFE approval to open its QFII custodian account with HSBC in Shanghai, though no details are in the story as to the amount. According to the story, Noruma, Morgan Stanley, Goldman, UBS & Citibank have all been approved by SAFE to open accounts. The CSRC approvals are already in place for those 5 plus two others who have yet to get SAFE “quotas” for how much they can invest.

Story in the People’s Daily today about PRC legislative changes related to citizens’ rights and social order.

The Washington Post has a lengthy story on the pending proposal to change the tax system in Alabama.

The failure of the Chief Judge of the Alabama State Supreme Court to understand the establishment clause has gotten wide media coverage.

Last week I attended the annual conference of the Academy of Legal Studies in Business.

I made a presentation about my research on private securities litigation in the PRC and spoke briefly during the presentation of Josh Newberg, with whom I am writing something on Section 406 of the Sarbanes Oxley Act.

The ALSB is a curious group. I learned several useful things, but most of the work I heard presented this year and last was simple–mainly descriptive, not analytical. It is as if most of the presenters observe things from afar, standing outside the vital, contested center of issues. They are not the “they” who pass new laws, spin new theories, create reality.

But some ALSB people are very sharp and seem to be doing first-rate work. I aspire to be part of that strata of the academy’s membership.

The conference was held in Nashville. I enjoyed exploring the Vanderbilt campus and was surprised by how much I liked Nashville.

Today I am in Birmingham, visiting my family. My brother showed me some new rental properties he has acquired.

PRC leaders constantly “zhi chu.” The lead stories on nightly CCTV broadcasts routinely feature a top leader “pointing out” (指出, zhi chu) this and that. Stories in the print media also regularly have some official pointing out, emphasizing or “revealing” a litany of platitudes.

In fact, the sarcastic piece that got the Beijing Xin Bao newspaper permanently shut down listed just this as one of the “7 disgusting things” about the PRC. It lamented the way top leaders “zhi chu” obvious things such as, “when you are hungry, you should eat,” or “when it is cold you ought to dress warmly.”

Lately Shang Fulin, the head of the CSRC, has been busy “zhi chu-ing.” Often he points out that reform (gai ge) and cleaning up (gui fan) of the PRC securities markets must be kept in pace with development (fa zhan).

I think these comments, though vapid on one level, do have some hermeneutic purpose. They are readable tea leaves. I take them to express that a different political or policy “line” exists under Shang than under Zhou Xiaochuan, the former CSRC chairman. Zhou sometimes expressed the idea that it is not the job of regulators to assure that investors profit. Rather regulators are simply to enforce the laws. Shang, I think, is saying that law enforcement has to be moderated so as not to disrupt the development of the markets or unduly affect existing share prices.

Shang recently has offered classic “zhi chu” platitudes concerning the in-progress revision of the Securities Law and initial promulgation of a Securities Investment Funds Law.

Interestingly, he also mentioned promulgation of Stock Issuance and Listing Rules. I have seen many prior references to the revision of the Securities Law and promulgation, finally, of a Funds Law, but this is the first time I’ve seen something about promulgating Stock Issuance and Listing Rules.

I am not sure what the significance of this might be. The Co. Law already lays out many objective criteria for issuing securities (for IPOs, three years of operations and continuous profits, projected profits exceeding bank interest rates, certain scale requirements for issuers). So there is already law on the criteria for issuing; I don’t think they need more.

The last revision of the Co. Law empowered the CSRC to make special rules for high tech companies. But now that the “second board” is dead, or at least clearly on indefinite hold, I don’t think any new rules are needed for that kind of issuing and listing.

They could just want to codify at a higher level some of the CSRC’s existing rulemaking, such as the instructions to the Stock Issuance Examination Committee. However, it is hard to see any compelling need to upgrade the status of existing regs (to State Council enactments?). There must be something new afoot. What?

The Securities Association of China (ostensibly, a NASD-like SRO) has released the outline of material covered in the exams it administers for obtaining professional qualifications to work in the PRC securities industry.

They must have been rather confident their outline would be approved by the CSRC–the “official” SAC prep guides for the exam have been on sale for a while. I bought some of them in Shanghai last week, in a small securities-focused book shop in the Astor House hotel.

The Times has a story about the relocation of summer language programs from the PRC to the US this year because of SARS concerns. The story focuses on Princeton in Beijing, the program normally hosted at Beijing Normal University. I attended PIB after my first year of law school and spoke there once while I was working as a lawyer in Beijing.

Besides these language programs, undoubtedly many programs designed to introduce foreign students to PRC law were also cancelled for this summer. As the Times story points out, organizers of these programs had to make decisions about what to do for this year in April-June when the SARS threat was raging and the WHO and CDC travel advisories were still in place. I know the Willamette program in Shanghai at the East China Univ. of Politics and Law (on the campus taken from St. John’s after the revolution) that I attended as a law student was cancelled this year. I assume most or all of the others were, too.

The website of the Shanghai Stock Exchange has a glossary of English securities market terms with Chinese definitions. I ran across another list of Chinese legal terms with English explanations at the Lehman, Lee & Xu site.

There are many books designed to help Chinese speakers learn financial terms in English, but I’ve seen very little going the other way. Materials for teaching trade terms to foreign learners of Chinese are common (I remember using one that included terms like “polyester fill” along with more useful things like “letter of credit”). Nothing to my knowledge exists, though, that is targeted specifically at the financial sector. Perhaps this will change soon. Foreign investment in the PRC securities, banking and insurance sectors is only now being (slightly) liberalized, driven largely by China’s WTO accession terms. Maybe some material will be added to the existing “international trade” textbooks to introduce terminology related to these areas.

I’ve long thought it would be fun to write a textbook for English speakers on “legal Chinese.” Also, besides teaching a general course on doing business in China, it might be fun to develop one specifically on insurance, securities and banking.

Another foreign-invested fund management company has been approved by the CSRC, this one between China’s Everbright and Prudential. FinanceAsia.com has a story about it here.

Rules permitting FI-FMC and foreign invested securities companies were promulgated at the same time in 2002, though FI-FMCs have been much more popular than FI-SCs.

I wrote a brief article on the FI-FMC and FI-SC rules for the US China Business Review and a short piece on just the FI-FMC rules for China Law & Practice.

Yesterday I visited the Astor House Hotel, one of the oldest buildings on the Bund in Shanghai. It was a hotel as early as 1846, called Richards House then, after the family that ran it. The grand Astor House was built in 1906. Einstein, US President Grant, Bertrand Russell and Scott Joplin all stayed there. It was the site of the first use in China of a telephone and electric light, according to signs in the lobby. When the Shanghai stock exchange was reopened in Dec. 1990, it was in the former “Peacock Lounge” of the old hotel. A few people are still trading there–it is now leased by a securities company.

The State Administration of Industry & Commerce, the agency that issues business licenses, is apparently going to rate enterprises into 4 grades of trustworthiness.

The CSRC has announced that all PRC securities companies must re-register with the CSRC within a month. They will be issued new business permits by the CSRC and are then to apply for new business licenses from the State Administration of Industry and Commerce.

I wonder if this is part of an effort to crack-down on “irregular” off-exchange share transfers?

The CSRC has fined two companies for failing to produce annual reports on time, the Shanghai Securities News reports.

It seems this could be the basis for private shareholder litigation.

Under article 17 of the SPC’s PSL Rules, an actionable “securities market misrepresentation” is defined to include disclosure made in an inappropriate manner (不正当披露信息的行为, bu zhengdang pilu xinxi de xingwei). “Inapporpriate manner” is then defined to mean the failure to disclose information within the required time or by the prescribed manner.

This is different than a “material omission.” That is defined separately. By defining “misrepresentation” as they have, the SPC’s rules seem to make actionable cases just like these–where an issuer has simply failed to disclose on a timely basis information as required by the PRC Securities Law.

The PSL Rules also require an administrative penalty (or criminal judgment) as a prerequisite for brining private securities litigation. That’s’ what the CSRC actions are–administrative penalties (xingzheng chufa jueding).

So now we have two issuers against whom an administrative penalties have been issued for behavior that is defined by the PSL Rules as a misrepresentation. Under the PSL Rules, issuers are strictly liable for investor losses caused by the issuer’s misrepresentations–causation between an investor’s losses and any misrepresentation as defined in the PSL rules is assumed as a matter of law. So, if the stock of these companies goes down once they finally issue their annual reports, it would seem they can be sued under the PSL rules.

The National Development and Reform Commission (NDRC) has a new section on small and medium enterprises (SMEs) which is drafting something called Several Opinions on Promoting the Development of the Private Economy, according to a report from the China Business Times.

A new Banking Supervision & Administration Law was approved in principle yesterday by the National People’s Congress Standing Committee (NPCSC), along with amendments to the People’s Bank of China Law and Commercial Bank Law, according to a Xinhua story.

These changes relate to the creation of the China Banking Regulatory Commission earlier this year, an administrative reorganization which split the PBOC’s functions, leaving interest-rate setting (central banking) functions with the PBOC and putting regulation of the banking sector into the new CBRC.

Actual enactment of the amended laws and the new law will be left up to the full NPC, which I suppose means these legal changes will occur next March.

The number of firms approved to invest directly in China’s RMB-denominated stock & bond markets (previously off limits to foreign investment) has grown to seven with the addition of Deutsche Bank and HSBC this week.

After the CSRC approves these firms as QFIIs in accordance with its rules, the institutions apply to the State Administration of Foreign Exchange for a quota on how much foreign cash they can convert into RMB to invest.

Once brought into China, the reconversion and outflow of these funds is restricted. Thus a fundamental change in foreign sentiment towards China cannot trigger a massive outflow of hard currency from QFIIs who have already brought money into China.

The CSRC has for several years annually complied statistics on the PRC’s securities and futures markets, creating volumes aptly titled the China Securities and Futures Statistical Yearbook (中国证券期货统计年鉴, Zhongguo Zhengquan Qihuo Tongji Nianjian).

I first saw this volume on my visit to the CSRC last week. Despite my frequent haunting of bookstores, I had never run across this volume before, even though I routinely scour the law, securities and economics sections of the big Xinhua bookstores at Xidan and Wangfujing in Beijing, not to mention many smaller bookstores. I also failed to find it at Book City on Fuzhou Lu here in Shanghai this week. The CSRC itself doesn’t sell the book, but the fellow I talked with last week was nice enough to give me a CD that came with the book. On the jacket of that CD I found the publisher’s number. So today I tracked them down here in Shanghai. I bought each of the statistical yearbooks for the last 5 years, all they had available.

The CSRC itself is listed as “editor” for each volume. For the volumes published in 1999 & 2000 (covering 1998 & ‘99) the publisher is listed as China Financial & Economic Press (Zhongguo Caizheng Jingji Chubanshe), with a Beijing address, but for the last three years Shanghai’s Baijia Publishing House (Baijia Chubanshe) gets the credit. However, all the editions have the same cover design and basic format. In whatever guise, the publishers seem to be affiliated at least for distribution with the book publishing arm of the Shanghai Securities News, one of the official newspapers which publishes listed company disclosure materials.

The shop is well-hidden, deep in a recess off of Yongjia Lu, near Hengshan Lu in the old French settlement. I wouldn’t have found it without the help of a guy repairing bicycles. The sign on the main road says only Shanghai Securities News Publishing, only in Chinese. The lady inside told me they are the book publishing wing of the paper. She was quite helpful. Besides these books, I did not see much else of interest. There was a new volume on MBOs, and they also publish Song Yixin’s book on private shareholder litigation.

Two small foreign-invested enterprises have been approved by the PRC’s Issuance Examination Committee Zhejiang King Refrigeration (浙江国祥制冷工业股份有限公司) and Ningbo’s Tongmuo New Materials Corp. (宁波东睦新材料股份有限公司) Based on its time of approval and the current pace of listings, Tongmuo may be able to issue the first A-share IPO by and FIE by the end of the year, according to a story in the Shanghai Securities News.

Last month it was reported that another FIE, Rongshida-Sanyo Electric Appliance Co, had been approved by the SIEC for an A-share IPO.

The PRC security investment funds law may be submitted to the NPCSC for its third reading (and therefore passed) in October of this year, according to another press story.

Today I met with Song Yixin, a Shanghai lawyer who has been active in bringing shareholder litigation against PRC listed companies. He has written a book on the subject and maintains an extensive website. We talked for about an hour and a half at the offices of the Wenda Law Firm, where he is a partner.

Currently one of his cases is representing a group of shareholders, including some holders of B-shares, who are suing Jinzhou Port. PG&E is named as a defendant in that suit. Generally, though, he said parties other than the listed company itself–such as underwriters, accountants, lawyers, appraisers, etc.–have not been named as defendants in cases with which he has been involved.

I asked him whether he thinks every defendant has to be the subject of specific enabling government action in order to be sued, or whether a single action related to a general set of facts, not specific parties, would be sufficient. Song thinks the required administrative penalty can be with regard to a set of facts and need not name a specific defendant as culpable, but he agreed the PSL Rules are not explicit on this point.

He said he has not observed any slacking of the CSRC enforcement efforts now that such actions can enable private securities litigation.

Wednesday I am supposed to meet with Xuan Weihua, another member of the emerging PRC “plaintiffs’ bar” for shareholder litigation.

China had a big soiree tonight to unveil its emblem for the 2008 Olympics. The ceremony was at the Temple of Heaven in Beijing. It was broadcast nationally. First they showed a double-decker bus carrying the winning entry in the emblem contest throughout Beijing, with police escort. The procession followed the Fourth Ring road from the place where the Olympic Village and many of the venues will be. The hosts, riding on the open-air top deck of the bus, gushed about the beauty of Beijing. The big modern buildings and highway itself were lit up for maximum effect. The bus then traveled across the city on Chang’an Jie, driving past Tiananmen Square and finally arriving at the Ming Dynasty Temple of Heaven.

Actor Jackie Chan and ping pong gold medalist Deng Yaping carried the chosen emblem from the bus to a table set up in front of the Temple of Heaven. The acting mayor, appointed after the last one was fired in April for the SARS cover up, introduced a litany of dignitaries and made a few uninspired remarks. After other speeches (how uncomfortable the assembled dignitaries must have felt, decked out in suits and ties in all that heat!), NPC chairman Wang Bangguo and some guy from the IOC unveiled the emblem.

It is a red seal over the words Beijing 2008 and the Olympic circles. Inside the border of the seal is a squiggle that looks both like the character Jing in Beijing and like a running human figure, with its arms legs extended in movement.

It seemed to me like an entirely functional logo, though after all the build up, probably any symbol would have been a let down. I’ve never seen such fuss made over a logo.

To my eye it appears that the human figure is inside a box, as if his or her arms are pressing against the sides of the box and his or her feet are flailing, running to get out of the constrained environment. In that sense, maybe the emblem reflects something unintended about traditional Chinese culture and contemporary PRC politics! Freedom? Competition? Sure, all you want–so long as you remain within the bounds of the box.

There is of course rich symbolism in holding this ceremony at the Temple of Heaven. Like the logo itself, there is a desire to tie hosting the Olympics (a sign of China’s arrival as an important country on the modern international stage) with past glories. They are striving to create a kind of cultural continuity and narrative of modern development.

Wang Bangguo and the IOC fellow unveiled the logo by using a seal with the logo carved on it to a “chop” a scroll that was then held up, with a larger version lifted behind them. Then there was a lot of music and dancing, with the Temple of Heaven lit up by all kinds of lights. They had runners, bikers and dancers making motions as if they were swimmers circling the various levels of the temple’s round base. In the U.S. we might describe it as a big “half time” show of a football game.

I am sure the opening ceremony for the Olympics will be spectacular. I recall attending some ceremony put on for the UN Fourth World Conference on Women some years ago. Say what you will about the PRC government (the lack of elections, suppression of free speech and intolerance for dissent are a few obvious things that make it unattractive), but you must admit they can organize a big scale ceremony. Undoubtedly the Chinese government and people (generally out of sincere cultural pride, not coercion, I think) are going to do their absolute best to dazzle the world with this Olympics.

I will never forget being in Beijing in July 13, 2001 when the decision that Beijing could host the Olympics was announced–the whole city erupted in spontaneous celebration, overflowing with joy and pride. Chang’an Jie in front of our apartment was filled with revelers. The old ladies and men living in the neighboring buildings were dancing. People from every strata of society were euphoric, from “wai di” prostitutes around Qian Men to people driving huge Mercedes Benzes, waving red banners out of the sun roofs.

I just cannot fathom anything that would produce the same reaction in America, certainly not on a national scale. I recall that after the Chicago Bulls won NBA championships, there were celebrations in Chicago that bordered on riots, and I can imagine that some people in a particular city might celebrate in the streets after learning that their city will host an Olympics, but a euphoric national reaction? I cannot imagine it.

The highlight of the night was a short video directed by Zhang Yimou. Like the video he did in support of the Olympic bid itself, tonight’s short was very appealing. Without words it explained how the chosen emblem (selected from about two thousand entries, the hosts said–first a committee of experts picked ten finalists, then a group “ordinary people” choose the winner) captured something about ancient PRC written characters, the idea of a chop which still has relevance, and how the symbol also evoked human motion from vaunting athletes to taijiquan practiconers. He managed to clearly communicate in a few minutes more than the overwrought ceremony accomplished in what felt like hours.

Today on Fuzhou Lu in the foreign language bookstore I found The Confusions of Pleasure: Commerce and Culture in Ming China by Timothy Brook, a China scholar at the University of Toronto.

Ming commerce and its cultural consequences might seem quite removed from my interest in the contemporary development of commercial law in the PRC. However, Brook notes in his introduction a parallel between cultural dislocations related to the rise of commerce in the Ming and cultural dislocations brought about by the resurgence of commerce in the PRC’s decades of reform and opening. In both cases, the flourishing of commerce created “pleasures” that threatened the perceived virtues of a pre-existing order.

Though I already have nearly two full suitcases of books to lug back to the US, I couldn’t resist buying this. The book appears thoroughly researched, artfully written and something that will just be a joy to read. It is in my field at the general level of “commerce in China,” I rationalized, and if I don’t find it directly relevant to my PRC sec reg research, it will at least enrich the context of my thinking about the development of stock markets in China.

Indeed, one reason I am interested in PRC stock markets is that I think they do entail a kind of cultural revolution. This is not because they represent the unleashing of capitalism in an ostensibly socialist system. In fact, they do no such thing. But stocks are an intangible product, one that exists only as a legal creation and thus depends on a legal system. Stocks also involve an information asymmetry that typically generates demands for transparency into the issuer’s operations. Legality and transparency are not traditional Chinese virtues, under the emperors or the CCP. Thus, the development of stock markets entails cultural and even political challenges as they seem to call forth both new forms of consciousness and new institutions.

Today I posted some comments to CLNET, responding to some material someone provided about a recent case in which a PRC listed company tried to make its unlisted shares tradable through a local property rights exchange. Unfortunately, CLNET is not archived. Here’s the exchange:

————————————
To: clnet@u.washington.edu
From: Walter Hutchens
Sent by: CLNET-owner@u.washington.edu
Date: 08/02/2003 10:08AM
Subject: Re: fan ben shouxiao AND Nanjing Xinbai

Very interesting stuff.

A few comments:

1. Note the CSRC official quoted as saying that the CSRC is not enforcing its Oct. 2001 notice which reiterated that all transfers of listed co shares (including “illiquid” shares) must, per Art 144 of the Co. Law, occur through a stock exchange. Administrative pragmatism is nice, but imagine working in a law firm trying to issue an opinion that a sale of shares complies with PRC law–and here is a provision in the Co. Law and a CSRC Notice saying that you must do it a certain way, and your client is doing it another way, but even CSRC officials are telling the press that the CSRC notice (and hence the Co. Law provision?) is a dead letter (even though neither has been repealed), yet you are supposed to issue a LEGAL opinion, not a nod at “this is how it’s done and everybody knows it despite existing legal provisions.” This suggests I think something about the “soft” role of law even in a highly regulated area like securities transactions. Bureaucratic discretion (the approvals or at least indifference of all the youguan bumen) routinely trumps “law”. As I have opined before, if the essence of US law is “it is the business of the courts to say what the law is,” the essence of PRC law is “nothing without govt. approval” (wei jing pizhun bu ke), or, conversely, with the right approvals, shenme dou xing (you can do anything).

2. The notice of the Nanjing CSRC office on Xin Bai bragged about how its “rapid response mechanism” was so effective in shutting down this “irregular” transfer. Clearly the problem of illiquid shares should be solved in a comprehensive, official way, but this spin on the action made me chuckle. Yes, how marvelous that all those govt. depts could coordinate their efforts to react so quickly and stop an economically desirable (at least to the parties) transaction. A basic purpose of capital markets is to efficiently allocate capital. A basic purpose of the PRC bureaucracies often seems to be to frustrate this function. “Protecting” the state’s assets in this way actually seems to hamper the state’s development, and “gui fan” here does not just mean regularizing or standardizing, it means asserting sclerotic central control.

3. A tangent of earlier discussions on the “third board” related to the number of private co’s in China . While others correctly pointed out that there have been only a handful of “p-chip” IPO’s, I cited a quote from former CSRC chairman Zhou Xiaochuan that there are about 200 private listed co’s. This number sounds inflated to many observers (including me). But note in the material Deng Jiong provided the reference to 42 change of control transactions of listed companies in Q1 2003 (and noting a record 168 such transactions in 2002), and further noting that 2/3 of these 42 deals were transfers of state-owned shares to private enterprises. This suggests how the number of private company IPO’s only reflects a small number of the “private” listed cos.

4. All this (and the Shenzhen Development Bank-Newbridge Capital deal discussed before) underscores that M&A action in China, including for listed co’s, occurs virtually without reference to the public stock markets. Carl Walter & Fraser Howie discuss this in their excellent new book, Privatizing China, noting how the PRC has created “parallel markets” through these various share types, but that there is creeping privatization through the transfer of “illiquid shares”, which is ironic given that the share types scheme was created to avoid privatization.

Walter Hutchens
Assistant Professor
Smith School of Business
University of Maryland
http://www.rhsmith.umd.edu/lbpp/whutchens/

—–CLNET-owner@u.washington.edu wrote: —–

To: ,
From: “Deng Jiong”
Sent by: CLNET-owner@u.washington.edu
Date: 08/02/2003 02:18AM
Subject: Re: fan ben shouxiao AND Nanjing Xinbai

Hi Knut:

An interesting follow-up news release regarding your studies of Nanjing Xinbai on the website of CSRC Nanjing Office: http://www.csrc.gov.cn/Csrcsite/gdzgb/nanjing/html/jgdt0306202.htm

By far, the best news report I have read on this Nanjing Xinbai “test” is that on 21 Century Business Herald, June 16, 2003. Its internet address is http://www.nanfangdaily.com.cn/jj/20030616/cj/200306160602.asp

Deng Jiong

—– Original Message —–
From: “Knut Pissler”
To:
Sent: Friday, August 01, 2003 11:07 PM
Subject: RE: fan ben shouxiao AND Nanjing Xinbai

Thanks for your helpful comments on my question!

Regarding the recent discussion on share trading at the OTC-markets through Propery trading centers I would like to point you to a most recently published case (Fazhi Ribao, dated June 25, 2003, p. 12): The state owned shares of Nanjing Xinbai (600682), listed in Shanghai, were quoted for transfer (guapai zhuanrang) at the Nanjing Property Rights Trading Centre, whereby the local office of the CSRC issued an urgend order to terminate this trading acitivies of Nanjing Xinbai.

Another (failed) experiment with trading of illiquid shares?

Knut Benjamin Pissler
—————————–
Research associate
Max Planck Institute for Foreign Private and Private International Law
Mittelweg 187
D-20148 Hamburg
+49-40-41900-202
+49-40-41900-288
http://www.MPIPriv-HH.mpg.de