Walter Hutchens’ Blog

After finishing my UMD teaching for the fall semester I took a holiday trip to sweet home Alabama where I enjoyed being with family, drinking sweet tea and eating Krispy Kreme doughnuts. I am now in Beijing and plan to be here for most of January. I’ve gotten a temporary membership at a very nice local gym to work off the holiday food binge. My CDMA wireless networking card from China Mobile is now back in service. Now I can again turn my attention to the ever-fascinating world of PRC securities regulation (I mean that without irony, which is perhaps an indication of how eccentric I’ve become).

The CSRC had a year-end spurt of activity. On Dec. 11 they promulgated these detailed rules concerning the operation of the Stock Issuance Examination Committee (the SIEC).

The SIEC is an approval authority for PRC IPOs and follow-on issuances by listed companies. The fundamental organizational rules of the SIEC were amended earlier in 2003, as I have previously discussed. Those new basic organizational rules are here.

Under the original regulations, the membership and meetings of the SIEC were kept secret. Under the new rules, the CSRC must announce in advance information about the SIEC’s meetings.

This is I believe the first such announcement ever made. It discloses the matters to be considered at an upcoming meeting and the names of SIEC members scheduled to participate. Attached to the announcement are declaration by the companies whose issuance applications were on the agenda that they had not engaged in any improper efforts to influence the SIEC. “We have made no bribes, given no gifts, etc.”

After the meeting, the CSRC reported here the results of the SIEC’s deliberations. On Dec. 30 the SIEC approved the IPO application of TCL and the application of BOE Technology Group to issue additional B-shares.

The CSRC has disclosed the membership of the revamped SIEC here.

The Wall Street Journal ran a nice little story in advance of the SIFL meeting.

I think it is good that the SIEC is now less opaque. This reflects perhaps a general salutary trend of incremental improvement in regulatory transparency in China. But I continue to think tweaking the SIEC is fundamentally not the right approach. There is of course a substantial moral hazard that prospective issuers will seek to bribe SIEC members in order to get approval to raise vast sums of money by publicly issuing securities. But the best way to eliminate this problem is to eliminate the SIEC, not to tweak its membership or operating procedures. Share issuance should be subject to disclosure requirements enforceable through meaningful private rights of actions, not subject to government approval. Liberate stock issuance in China.