Rules are toothless

TRYING to assess Chinese listed companies according to market techniques used in Hong Kong or Singapore is, more often than not, an exercise in futility.

Chinese investors do not behave the way they do in the mature capitalist markets, listed companies do not obey trading rules, and regulators do not do what they are supposed to do.

What you get is an incoherent market driven intensely by speculation, rumours and hearsay, a market which behaves in a totally illogical way to foreign observers.

Some say these are signs of an emerging market dominated by unsophisticated retail investors and it will take some time before it reaches the level of maturity seen in Hong Kong.

They have a point. As experienced elsewhere, it will not be until China has seen its fair share of scandals and frauds before things are put right. There were several scandals this year. The latest involves the trading of supposedly non-tradeable bonus shares of the country's most profitable listed company, Sichuan Changhong Electric.

The point is, there seems to be a growing number of listed companies, in cahoots with their brokerages, openly flouting trading rules at the expense of retail investors.

It has reached a stage where some analysts say it pays to flout the rules because violators are given only a written warning.

Cynics say part of the problem is the regulators - chiefly the China Securities Regulatory Commission - often pay lip service to what they publicly espouse.

Despite the absence of a national securities law, there is no shortage of rules to govern market behaviour.

The list was lengthened yesterday with the announcement of the new guidelines requiring listed companies and their underwriters to comply with the Company Law and listing regulations.

Penalties are written into the guidelines, as is the case with the other listing rules.

The big question is, how determined is the regulatory commission in impressing upon market practitioners and listed companies that it is bent on punishing those who violate the rules? There is no point having 1,001 sets of laws in place when the regulators lack the resolve or political will to implement them effectively.

That, in a nutshell, is the regulatory commission's problem.