SECURITIES REGULATION
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Corruption in China

Guotai Junan under scrutiny more than a week before chairman’s disappearance

Guotai Junan along with 17 other institutions subject to “inspection tours” by Communist Party

PUBLISHED : Tuesday, 24 November, 2015, 8:38pm
UPDATED : Wednesday, 25 November, 2015, 5:33am

A Communist Party inspection team had been inside the mainland operations of Guotai Junan Securities for 10 days before the firm revealed it had lost contact with its Hong Kong chairman.

The latest revelations come amid a new round of party “inspection tours” at state-backed enterprises and universities. The “tours” are a common tool used by Party officials to quiz employees on corruption or illegal allegations and come during a busy few months for inspectors after dozens of senior finance executives were detained on various market misconduct charges.

Haitong Securities, Shanghai Electric, Shanghai Airport Authority and the Shanghai Maritime University are among 18 institutions under scrutiny, according to an announcement posted on the website of the Shanghai division of the Central Commission for Discipline Inspection (CCDI).

Separately, the Asset Management Association of China announced Monday via its website that it had lost contact with 12 domestic hedge funds and would classify them as “missing” if the firms did not contact the industry association.

The Guotai Junan “tour” began November 13.

On Monday morning Guotai Junan announced in a filing to Hong Kong Exchanges & Clearing it had been unable to reach its Hong Kong head Yim Fung - also known as Yan Feng - since last Wednesday. The news sent the firm’s shares down sharply Monday, though they recovered somewhat Tuesday, closing up 2.5 per cent at HK$2.92.

Speculation focused on Yim’s professional links to Yao Gang, the No 1 at China Securities Regulatory Commission and a former Guotai Junan executive, who is currently under investigation for suspected “serious violation of party discipline” - a euphemism for corruption - the CCDI, the Communist Party’s anti-graft watchdog, said earlier this month.

Well known in Hong Kong, Guotai Junan is regarded as a successful brokerage in terms of market share and trading volume, a rival broker who asked not to be named said, “It’s like growing plants. You need green fingers and they have them.”

Another broker working for a competitor firm said Yim had either fled or was already being held by investigators. “But if Yim really fled, he was actually bringing trouble to his bosses, because the Chinese authorities will target Guotai Junan,” he said.

A Hong Kong permanent resident and functional constituency vote holder Yim could try to stay in Hong Kong. However, there would be no guarantee local authorities would not try to return him to China, lawyers said.

“We have seen the Immigration Department assisting the mainland authorities in apprehending and removing persons from Hong Kong to the mainland,” said Patricia Ho an immigration lawyer at Daly & Associates. “The area is of course sensitive, and there is a lack of transparency in Immigration’s practises.”

Last December Guotai Junan’s Grand Millennium Plaza office was raided by Independent Commission Against Corruption officers who seized “certain securities trading account opening records and an agreement relating to a placing case”, the firm announced at the time. The home of then executive director, and now chief executive, Wong Tung-ching was also raided on the same day.

Separately Bloomberg reported Tuesday that the former chairman of Founder Securities and its joint venture with Credit Suisse, Lei Jie, was released from police custody several months ago after he disappeared in January. Lei was removed from Founder’s board in February after the firm revealed it had been unable to contact him.