CHINA BANKING AND FINANCE NEWSLETTER
Vol. 3, No.7 - June 25, 2002
TOPICS THIS ISSUE:
- Regulations on the Introduction of Foreign Capital into Equities Market Released
- China's Largest Stock Scandal Case Heard
- China to Tighten Supervision of Lottery
- Foreign Institutional Investors to Enter into China's Stock Market
- Job Agencies with Foreign Funding Allowed in Beijing
Regulations on the Introduction of Foreign Capital into Equities Market Released
The Regulations on the Establishment of Fund Management Companies with Foreign Capital and the Regulations on the Establishment of Securities Companies with Foreign Capital were released by the China Securities Regulatory Commission ("CSRC") on June 1, 2002 and will go into effect from July 1 this year. These regulations will allow foreigners to hold up to a 33 per cent share in fund management and securities companies in China and within three years of China's entry into the WTO, the percentage of ownership can be increased to 49 per cent.
The new regulations are expected to greatly affect China's equities market, as prior to the above noted regulations, participation in the fund management and securities sector was effectively limited to only domestic enterprises. Until now, acquisition of B-shares has been the only channel available to foreign investors to invest in the sector.
According to the new regulations, foreign investors can now become involved in the equities market either through acquiring an interest in existing domestic companies or establishing new joint ventures with Chinese partners. Foreign investors will be entitled to trade and underwrite stocks on both A and B-share markets.
Since the early 1990s, China's funds and securities industry has grown rapidly. However, experts fear that domestic companies will soon find themselves under extreme pressure, as they are small in size, highly vulnerable to risk and limited in product innovation capabilities.
(Source: Business Weekly)
China's Largest Stock Scandal Case Heard
The Shenzhen China Venture Capital Co. case, which is the largest stock price manipulation case in China, involving more than RMB 5.4 billion (US $653 million) of funds gathered from more that 100 companies and individuals, was heard by Beijing's No. 2 Intermediate People's Court on June 11, 2002.
The hearing lasted for three days and the court has not yet issued a verdict. The case is the first one of price manipulation in China. In the past, the China Securities Regulatory Commission (CSRC) would have investigated such cases.
Judges in the case faced the problem of unfamiliarity with relevant legal issues in the China Venture Capital business sector and prosecutors found themselves challenged due to the escape of the two main suspects of the case, Lu Jianxin (known as Lu Liang) and Zhu Huanliang who gained huge profits by manipulating the stock prices. Prosecutors could only put the seven people who assisted in the price manipulation scheme on the stand.
According to China's criminal law, manipulators of stock prices can be sentenced to a maximum of five years in prison.
(Source: China Daily)
China to Tighten Supervision of Lottery
Control over China's lottery market will be strengthened within coming months, the Ministry of Finance announced on June 17, 2002.
According to a Ministry of Finance spokesman, lottery institutions will be required to have their game's regulations and distribution method approved by the Ministry and published for public review. Lottery enterprises will also have to inform the public when a game stops. The spokesman also stated that the Ministry of Finance would punish those organizations engaging in unfair competition and disrupting market order.
China now has several lotteries, one of which is run by the Ministry of Civil Affairs for the purpose of raising funds for welfare projects, another lottery is run by the State Sports General Administration that provides funds to sporting groups and facilities for the public.
Experts have said that lotteries are a promising industry in so much as they increase tax revenues, create job opportunities and generate funds for the government.
(Source: www.peopledaily.com.cn)
Foreign Institutional Investors to Enter into China's Stock Market
According to sources within the China Securities Regulatory Commission [CSRC], detailed plans have been drafted to attract qualified foreign institutional investors (QFII) into China's stock market.
The scheme is undergoing final examination, a senior official with the CSRC said. Although declining to give an exact date when the rules would be finalized, he indicated that they would be launched at an appropriate time.
Experts involved in the drafting of the rules revealed that QFII's would be allowed to open special accounts at certain authorized banks in China, which could be used to receive and convert foreign currencies into Renminbi to then be invested in the local stock market. The QFII's would be able to invest in the A-share market, which is presently closed to foreign investors.
Under the new rules, foreign companies would also be allowed to take over or acquire stakes in domestically listed firms in the secondary market, said the senior CSRC official.
However, not all of foreign companies can come in as they will have to meet the threshold set by the Chinese Government in terms of asset scale and other qualifications, and there may also be special requirements detailing when funds can be remitted out of the country.
Apart from foreign-funded companies in China and mainland-background Hong Kong-listed firms, the government would also encourage blue-chip companies in foreign capital markets to seek public listing in China.
(Source: China Daily Hong Kong Edition)
Job Agencies with Foreign Funding Allowed in Beijing
According to a provisional regulation published by the Beijing municipal government on June 19, 2002, foreign firms can set up job agencies jointly with Chinese partners in Beijing. However, for the time being, solely foreign-funded job agencies are still not allowed.
The provisional regulation requires that both Chinese and foreign investors must have experience in providing services to job seekers. The joint venture must have sufficient capital, a fixed location and facilities for running the services. The provisional regulation also states that a joint Chinese-foreign job agency must have at least five full-time employees with good professional training.
The business scope of job agencies should cover the collection, processing and publication of information on job seeking and related consultations.
(Source: Xinhua)
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