Chinese Law | China: Vol.3, No.03

Happy Chinese New Year

CHINA BANKING AND FINANCE NEWSLETTER

Vol. 3, No.3 - February 4, 2002

TOPICS THIS ISSUE:

Bank Official Calls for Regulations for Financial Holding Companies
United Commercial Bank Chooses Hong Kong as its First Offshore Center
CSRC Issues New Rules for Convertible Bond Offerings
China's Central Bank to Further Support Development of Stock Market
First Civil Compensation Case Related to Securities Accepted by the Courts

Bank Official Calls for Regulations for Financial Holding Companies

A senior official at China's central bank has called for regulations to govern financial holding companies that are rapidly increasing in number throughout the country.

Xia Bin, the division chief of non-banking institutions with the People's Bank of China, stated that China has not clearly defined the legal status of these companies even though a number of financial holding companies already exist. China Everbright Group, Ping An Insurance and China International Trust & Investment Corp (Citic Beijing) are some of the prominent Chinese financial institutions that have established financial holding companies. Some of these enterprises have involved into financial businesses through their holdings in securities and insurance.

Mr. Xia said the operation of some financial companies would carry investment risks and China should set up regulations governing those financial holding companies as soon as possible.

China now has at least 400 brokerages, trust and investment firms and financial companies with combined assets of about RMB 1.8 trillion, up from RMB 147 billion in 1991.

Mr. Xia's remarks came a few days after China gave approval for Citic Beijing to set up a financial holding company with assets of more than RMB 300 billion.

The holding firm will include Shenzhen-based Citic Industrial Bank and Citic Securities, as well as Hong Kong's Citic Ka Wah Bank. It is believed a life-insurance venture with British insurer Prudential will also be included.

(Source: www.scmp.com)

United Commercial Bank Chooses Hong Kong as its First Offshore Center

Hong Kong has been chosen by the United Commercial Bank (UCB), a California-based bank, as UCB's first offshore center because of its geographical location for penetrating the China market, cultural affinity with China and business expertise.

Thomas S. Wu, president and chief executive officer of UCBH Holdings, Inc., officially opened UCB's new representative office in Hong Kong on January 28, 2002. UCB is a wholly owned subsidiary of UCBH Holdings, Inc.

According to Wu, UCB has a long-standing commitment to and experience in serving the Chinese market from California and that UCB will be able to grow from strength to strength with Hong Kong's geographical proximity to China and strong financial and banking expertise.

Wu said that the Hong Kong Representative Office would serve as a liaison office and enable them to assist customers transacting business in California, Hong Kong and Chinese mainland to manage their financial activities more easily and conveniently.

(Source: Xinhuanet)

CSRC Issues New Rules for Convertible Bond Offerings

The China Securities Regulatory Commission (CSRC) issued recently an announcement on the issuance of convertible bonds by listed companies.

According to CSRC, listed companies' profit ratio of weighed average net assets in issuing convertible bonds should be kept at over 10 percent. Those in the field of energy, raw material, infrastructure can be lower but cannot be less than 7 percent, and the accumulated bond balance of the company should be no more than 40 percent of its net assets. After the issuance, the accumulated bond balance should be less than 80 percent of the net assets of the company.

The new rules also regulate that funds raised by convertible bond offerings are supposed to be invested in the company's main business rather than in other purposes.

Convertible bonds can be converted into a predetermined amount of the company's equity at certain times during its life. Convertibles are sometimes called CVs.

Convertibles typically offer a lower yield than a regular bond because of the option to convert into stock and collect the capital gain. This lower yield makes them less attractive to the average investor. However, should the company go bankrupt, convertibles are ranked the same as regular bonds so you have a better chance of getting some of your money back.

(Source: People's Daily)

China's Central Bank to Further Support Development of Stock Market

Dai Xianglong, the governor of the Peoples Bank of China, stated on January 29, 2002 that China's central bank will continue to support the development of the domestic stock market by means of monetary policy while strengthening market regulation.

Dai Xianglong further stated that the linkage between the domestic currency market and capital market will be one of the major concerns of the central bank this year. Too many Chinese enterprises depend on bank loans rather than raising funds directly from the capital market. This puts banks, especially state-owned banks at great risk.

Last year, the enterprises raised about RMB 100 billion (12 billion U.S. dollars) from the stock market, but the total bank loans extended to them grew by more than RMB 1,300 billion (156.6 billion U.S. dollars).

The central bank has worked out a series of measures to support the development of the stock market while making greater efforts to scrutinize the illegal entry of credit funds into the stock market.

(Source: Homeway)

First Civil Compensation Case Related to Securities Accepted by the Courts

Haerbin Intermediate People's Court has formally accepted a case brought by three investors from Beijing and Shanghai against Daqing Lianyi, a publicly listed company who was alleged to provide misleading information. This became the first case that has been accepted by the courts since China's Supreme People's Court voiced its opinion stating that civil compensation cases related to securities can be accepted by courts.

It was learned that the date when Daqing Lianyi's illegal behavior of providing false statements was confirmed by the China Securities Regulatory Committee ("CSRC") was March 31, 2001. According to the Circular issued by the Supreme People's Court on January 15, the statute of limitations of the lawsuit against Daqing Lianyi will expire on March 31 this year. This case is expected to be heard after China's Spring Festival holiday.

(Source: www.Sina.com.cn)

Lehman Lee & Xu

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Vol.3, No.03