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SCMP Reporter

A SECOND Shougang executive may have been detained at the same time as company chairman Zhou Beifang, sources close to Shougang revealed yesterday.

  Mystery surrounds the whereabouts of Li Geng, Zhou's right-hand man, who travelled with Zhou to Beijing but has not been seen or heard of since his boss was arrested last week.

  Mr Li is the deputy managing director of Shougang Holdings, the managing director of locally listed Shougang Concord International Enterprises and chairman of Shougang Concord Technology.

  Sources suggested he could be helping authorities with inquiries into alleged 'economic offences' committed by company chairman Zhou Beifang.

  The possible detention of a second executive with strong links to the Hong Kong-listed arms of the huge Chinese corporation will increase the pressure on the share prices of the Shougang companies, analysts said.

  However, Xinhua (the New China News Agency) has said the arrest of Zhou would not affect investment activity in Hong Kong.

   'It is merely a personal matter if a person commits crime and it should not affect his company or others, nor the Hong Kong stock market,' said Zhang Junshin, deputy director of Xinhua.

   The stock exchange and the Securities and Futures Commission (SFC) are casting around desperately for more information on Zhou's arrest before deciding if action is needed.

  A late-night meeting on Friday of senior exchange executives and Shougang representatives failed to ease regulators' concerns.

  The exchange sent a strong demand yesterday for additional information to the boards of Shougang Concord International and Shougang Concord Grand and will suspend trading in the shares of the companies if the answers do not come up to scratch.

  Herbert Hui, head of the exchange's listing division, said the exchange wanted absolute reassurance there would be no impact on the Hong Kong-listed companies and that local investors would not be disadvantaged.

  'At the moment there are no moves towards suspension, but if we find there is any significance at all for Hong Kong investors, we will take action,' Mr Hui said.

  He said the exchange expected a reply 'as soon as possible' and would be monitoring share price movements tomorrow if no reply had been received by then.

  He said action could also be taken if there was 'any major untoward fluctuation' in prices.

  Share prices of the two companies suffered heavy selling late last week on the news parent company Beijing Shougang Corporation's chairman and Zhou Beifang's father, Zhou Guanwu, had resigned. The shares are likely to be further hit when trading resumes tomorrow.

  'There is uncertainty over the future prospects of Shougang as the corporation's top management has been replaced,' said a local analyst, adding that the malaise could spread to other 'red chips' because of the political implications behind the reshuffle.

  A European fund manager predicted the stock market would open lower tomorrow in the face of the abrupt change in management of the mainland's steel giant.

  'Overseas investors are particularly sensitive to political stability in China and so they will unload their portfolios until the uncertainties are cleared,' she said.

  One victim may be Cheung Kong Holdings, whose chairman Li Ka-shing is a friend of Zhou's and which used the Shougang companies to bolster political connections on the mainland, analysts said.

  Despite attempts to minimise the impact of Zhou's arrest, a number of issues have gone unanswered, namely the possible involvement of Deng Zhifang, second son of China's paramount leader Deng Xiaoping, and chief executive of Shougang Concord Grand Group.

  Speaking from Beijing, Liu Wei, a director of Beijing Shougang's public relations department, declined to discuss Deng Zhifang's possible involvement. Sources said he was unlikely to be implicated.

  The sources said the alleged 'crimes' were likely to have been committed in the mainland rather than Hong Kong.

  In an attempt to patch up the affair, Shougang has appointed Zhang Yanlin to replace Zhou Beifang as head of the company's Hong Kong operations and is flying him to the territory from Peru, where he has been overseeing mining operations, this week.

      According to Beijing Shougang's public relations department, Zhang, 55, was once an assistant general manager of the corporation and has been with the group for more than 30 years.

  Sources suggested Zhang was a politically safe appointment, having worked under Zhou Guanwu.

  Li Ka-shing, chairman of Cheung Kong Holdings, which has strategic stakes in both listed Shougang companies, said as Zhou's friend he was sorry to hear of his arrest.

  Mr Li asserted business co-operation between Cheung Kong and Shougang was small and Cheung Kong's operations would not be affected.



Arrest fear for Zhou associate