There's still nothing concrete about governance in corporate China

INVESTORS ONCE DISCOUNTED the value of H-share companies, figuring China's weak corporate governance meant some nasty surprises could lie ahead. No longer. With international investors rushing in, it has become fashionable to think things have improved a lot.

Now Anhui Conch Cement, whose shares are much sought-after by fund managers, has once again raised doubts about just how much has changed.

Under a plan unveiled this week, the company will acquire minority stakes in four cement-making facilities for 3.8 billion yuan. As part of the deal, the seller, Anhui Conch Venture Investment Co (Conch Venture), will get an 18.38 per cent stake in the listed firm.

What is Conch Venture? The announcement did not say but some old documents help shed some light. Conch's 2005 auditors' report said 'some directors are directors and equity holders' of Conch Venture and 'the Anhui Conch Labour Union is a substantial shareholder' in Conch Venture. 'Some directors of the companies are also members of the union,' it adds.

Other than this there is no information on the shareholding structure of Conch Venture. But according to mainland media reports, its shareholders also include the labour unions of its subsidiaries and Conch's five executive directors. Conch chairman Guo Wen San is its legal representative.

It seems fair, then, to assume that the listed company is buying factories from a firm owned by its management and staff. Once the deal is done, Conch Venture will become the controlling shareholder in Anhui Conch with a 38.5 per cent stake (it already owns Conch stakes indirectly; see diagram).

Sound reasonable? Then consider this. All but one of the facilities was established in 2000, four years after Anhui Conch sold shares in a Hong Kong initial public offering. Yet Anhui Conch is buying only a 51 per cent stake.