CHINA BANKING AND FINANCE NEWSLETTER
Vol. 3, No.2 - January 18, 2002
TOPICS THIS ISSUE:
- Chinese Courts To Take Up Securities Fraud Cases
- Merchants 'weeks away' from IPO
- Disclosure Clarified for Foreign Listings
- New Rules Govern Stock Firms
- Banks Face Major Year of Reforms
Chinese Courts To Take Up Securities Fraud Cases
China's courts are again accepting cases from investors suing listed companies claiming they had issued false information. This comes four months after consideration of new cases was suspended.
On January 15, China's Supreme People's Court issued a circular opening the way for intermediate courts of municipalities, provincial capital cities, separately listed cities or special economic zones to accept the cases.
The new circular aims to provide stronger protection to the legitimate rights and interests of individual investors in securities markets.
Nevertheless, there are still some restrictions on acceptance of such cases by the courts. According to the new circular, litigants may bring their case to the courts only after the China Securities Regulatory Commission (CSRC) or one of its branches decides that a fraud has been committed. There is also a two-year limitation period to commence legal action against the fraudulent party. The limitation period is calculated from the date that CSRC or one of its branches renders a decision that a fraudulent act has been committed.
The cases that will be handled are confined to the dissemination of false and misleading information by listed companies, stock exchanges and other institutions, which result in losses to investors.
As of January 15, courts will accept such cases.
(Sources: www.homeway.com, www.scmp.com)
Merchants 'weeks away' from IPO
Shenzhen-based China Merchants Bank plans to go public on the Shanghai stock market. According to the bank's president Ma Weihua, after several years of tough preparation, the landmark listing is only weeks away.
Currently, there are only three small banks listed on the market, including the Shenzhen Development Bank in 1989, the Shanghai Pudong Development in 1999 and the Beijing-based China Minsheng Bank in 2000. The much-heralded initial public offering (IPO) would make China Merchants Bank the fourth commercial bank to list on the two domestic equity markets in Shanghai and Shenzhen.
Following an aggressive strategy, the bank also intends to kick off its first overseas branch in Hong Kong following its domestic listing.
Established in 1987, the bank has become one of the most profitable banks in China with total assets of 250 billion yuan (US $30.1 billion). After three expansions, the company's registered capital stood at 4.2 billion yuan (US$ 507.8 million).
The bank has already developed an extensive network in major cities on the Chinese mainland and representative offices in Hong Kong. Some of its businesses, such as the e-banking service and credit card (or Yiwangtong) service, lead the market in China, which is still dominated by the four largest State-owned banks.
A number of other financial institutions, including the Beijing City Commercial Bank, Tian'an Insurance, China Pacific Insurance Co and Huatai Insurance, are also queuing up for a public offering.
(Source: Business Weekly)
Disclosure Clarified for Foreign Listings
The China Securities Regulatory Commission (CSRC) has published a consultation paper revealing special disclosure requirements for prospectuses submitted by foreign-invested listing candidates.
The document, which is open for public comment until January 20, supplements the guidelines issued last year in November that endorsed the policy that permits qualified foreign-invested joint stock firms to be publicly listed in China.
Analysts state that the regulations are one of a series of steps needed to lay down concrete rules for such listings.
In addition to existing disclosure requirements, the paper suggests that foreign-invested listing candidates be required to elaborate on the risks stemming from changes in the taxation policies in China that will most likely be enacted in the next few years.
The paper also stated that firstly, policy changes in the foreign shareholders' home countries regarding investment in China must be disclosed and secondly, there must be full disclosure of the listing candidates' connected transactions with foreign shareholders, such as raw material supply and cost-sharing in advertising efforts.
The requirements addressed a common practice by foreign investors to evade or reduce tax by concealing the profitability of their mainland operations.
(Source: www.scmp.com)
New Rules Govern Stock Firms
China Securities Regulatory Commission (CSRC) announced new rules governing stock brokerage companies on January 7, laying the legal groundwork for the industry to integrate further with the rest of the world.
Analysts say the regulations will improve the healthy growth of China's 100-odd brokerage firms and pave the way for overseas operations.
In a reflection of China's WTO membership commitments, the new rules allow foreign institutions to set up joint venture and domestic brokerages or to buy into brokerage companies overseas; a major improvement from a draft discussed by brokerages last year.
More notably, the rules provide a legal framework for the brokerages firms to offer more specialized services and to improve corporate governance. Such changes in the rules will strengthen the brokerage firms in the face of foreign competition.
The new rules also allow brokerages to set up subsidiaries specializing in different operations, including asset management, online stock trading, listing consultancy and underwriting.
According to analysts, the new rules also set out very specific requirements concerning corporate governance and risk prevention, by introducing a system of independent directors and internationally accepted capital requirements.
(Source: China Daily)
Banks Face Major Year of Reforms
The central government has asked banks to firstly, strengthen its supervision of non-performing loans (NPLs) and secondly, reduce NPLs in 2002.
It is hoped that such action will help safeguard the national financial industry.
The central government also stated that China would implement stricter supervision policies, increase transparency and apply international accounting standards in financial units.
China aims to cut the average NPL ratio in Chinese banks by 2 to 3 percentage points. The ratio now is as high as 25 per cent after the government helped the four biggest State banks spin off 1.3 trillion yuan (US$157 billion) NPLs.
The official's remarks followed the reported removal of the governor of the China Construction Bank, Wang Xuebing.
Vincent Chan, Head of China Economics and Strategy of UBS Warburg stated that clearer policies on banking reform will be announced when top officials and banks meet next month at a national financial conference. Chan believes China will put forward further reforms, as the government is concerned that inefficiency in Chinese banks could disrupt the national economy.
(Source: Business Weekly)
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