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Christine Chan

CHINA'S first set of national B share regulations has presented the China Securities Regulatory Commission (CSRC) with a dilemma.

Is the CSRC to be a dinosaur or an efficient market regulator? 'We are worried that the CSRC will be overpowered as well as having too little power,' Wong Bun-yuen, general manager of Sun Hung Kai Securities' China division, said.

The national legal framework governing B shares for foreigners will supersede the regional rules issued by Shanghai and Shenzhen four years ago.

It will effectively entitle the CSRC and its superior, the State Council Securities Policy Committee (SCSPC), to take over B-share listing approval at the two stock exchanges from local regulatory bodies in Shanghai and Shenzhen.

'The implication is that Beijing wants to keep a tighter rein on the market,' lawyer David Buxbaum of Lewis, D'Amato, Brisbois, Bisgaard, Buxbaum & Choy, said.

  While tightening the screws on the market, the regulation has been opposed by market practitioners.

They believe the examination and approval of B shares at State Council level to be inefficient.

Under the regulations, companies wanting to issue B shares are to go to the relevant authorities at that level.

'This is the most juicy part of the legislation because it involves the question of politics among different authorities,' an analyst said.

  SCSPC is a standing committee with members representing various authorities of the State Council.

As the CSRC is an executive agency of the SCSPC, the final say on B share issues also lies with the likes of the State Planning Commission, the Ministry of Foreign Trade and Economic Co-operation, the Commission for Restructuring the Economic Systems and the People's Bank of China. Mr Wong said the CSRC's authentic authority could be weakened, if the new regulation failed to resolve the problem of fragmentation of power.

 The regulation could lead to unfairness in its lack of checks and balances on the CSRC, which took on both functions of a securities market regulator and an authorising agent for new listings.

In Hong Kong, the Securities and Futures Commission fulfills the role of a watchdog, while the listing procedures are administered by the stock exchange.

There are doubts whether the CSRC had the manpower and the means to monitor the geographically-remote stock markets in Shanghai and Shenzhen.

The problem would be aggravated when B-share issuing companies are extended across China, increasing the CSRC's workload.

The recent departure of several senior officials at the CSRC, including two vice-chairmen and the general counsel, have raised concerns over the adequacy of professional manpower to cope with the increasing workload.

One analyst said it would be more appropriate for the State Council to provide guidelines to companies on how to issue and list shares rather than to approve their share issues individually, a time-and effort-consuming activity.

  The need to go to the State Council for B share approvals would be likely to the issues.

  Meanwhile, the regulation has fallen short of beefing up corporate governance at B share companies. Baker & McKenzie lawyer Leung Cheuk-yan said it was less stringent than measures governing listed companies abroad.

'The latest regulation has not asked the B share companies to adopt Mandatory Provisions on the articles of association which are used to complement the inadequacies of China's Company Law,' Mr Leung said.

The B share and H share regulations are comparable as both are targeted at foreign investors.

'However, it is interesting to see that some of the concepts of the Mandatory Provisions are included,' Mr Leung said.

He quoted as examples H share companies that pay dividend based on lower profit figures, calculated by sets of Chinese and international accounting standards.

 'For B shares, it is proposed that the same principle will be applied.' Still, the regulation represents some improvement in allowing overseas Chinese citizens to own B shares, and in strengthening the requirements for information disclosure.



CSRC at crossroads under new rules