Wang Xiaoshi
November 22nd, 2004Wang worked as an official in the CSRC’s securities issuance department. He allegedly took bribes to reveal the identity of persons on the Stock Issuance Examination Committee (SIEC). Those persons had authority to recommend approval of specific issuance applications.
Under PRC law in effect from 1999-2003, the identities of SIEC members were to be kept secret. Presumably this was intended to shield SIEC members from corruption. You cannot easily bribe a decision maker if you do not know who he or she is. Mr. Wang apparently helped solve that problem. He reportedly got RMB 200,000 (USD 24,000) for his service. By PRC corruption standards, this is small potatoes. One can’t help but wonder how much the SIEC members were themselves offered once Wang revealed their identities. That shoe has not yet dropped.
China has now abandoned the approach of trying to use secrecy to bolster transparency in its issuing process. However, issuers in China must still obtain government approvals in addition to meeting various objective criteria (three years of profits, etc.).
Thus, China has changed its tactics for deterring corruption in this area, but it has left unchanged the root incentive for such corruption which is the basic requirement of government approval to issue securities.
February 9th, 2006 at 4:55 pm
[...] The PORC was created as an ostensibly independent body to review IPO applications. Initially, the CSRC mandated that is membership list be kept secret (while stating that PORC was designed to “increase transparency,” prompting me to write a paper in graduate school about “secret transparency” in PRC securities regulation). Presumably the idea was that if the members of PORC were unknown it would be harder to bribe them. But given the windfall that could result from an IPO, issuers had strong incentives to find out who would review their IPO applications, and in due course a CSRC staff member was arrested for taking bribes to reveal such information. Then the CSRC reversed course, requiring that PORC membership be disclosed, that meetings be announced in advance, and that individual PORC members reviewing an IPO application make a declaration that they’d been subjected to no improper influence. This new idea of requring an IPO candidtate to publish its red herring before PORC meets to review its application is presumably another attempt to discipline PORC; if everybody knows what they are reviewing, they will presumably be under greater pressue to make listing recommendations in accordance with law. [...]