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SCMP Reporter

Some Hong Kong analysts and fund managers - especially mainlanders - are discovering the hard way that criticising Chinese companies can cause them problems inside their firms.

  Tempers rose when a UBS Securities employee wrote a less than flattering report on Citic Pacific last month recommending investors take profits, say sources familiar with the disagreement.

   At least one of the report's co-authors has left the firm since the report came out.

  Another case involves the head of China research at CEF Securities, Wang Qi, who resigned on Tuesday. Last month, he criticised China Eastern during the firm's roadshow, embarrassing the airline chairman.

 The circumstances surrounding the mainland-born researcher's situation have raised concerns among brokers.

     Some bankers and fund managers have come under similar pressures. Many in the financial community have tales of a friend or colleague who has felt the heat of senior management pressuring them to tone down criticism of mainland firms.

  These events, and others, suggest that analysts, bankers and fund managers are being asked to pull their punches when talking about China companies and exercise a kind of self-censorship.

  The dangers of researching or reporting on China are well documented.

   Last year, an SBC Warburg analyst was detained for a month without charge on allegations that she had stolen state secrets - a central bank report on the economy.

  Such cases have created a fear in the financial community, especially in the arena of research.

   That underlying fear, together with purely commercial motivations, threatens to water down objective and critical analysis on mainland entities.

  In most - but not all - recent cases, the crackdown on criticism is not coming directly from Chinese companies or institutions but from overzealous management, anxious not to jeopardise future business prospects.

  In the UBS case, one writer of the report, mainland-born Hao Wang, declined to comment and the other writer, Lau Wai-kong, did not return phone calls.

  Hao Wang has since left the company, although sources at UBS say Mr Lau is still employed there.

   Colleagues and competitors say that the firm was not happy to have its name on a negative report about a company set up by China's State Council.

  UBS Securities' managing director for the region, John Price, said 'Hao Wang decided to leave the firm because he had difficulties with management policies.'    Mr Price declined to comment on the Citic report.

  Several competitors of UBS praised the report for its hard-hitting commentary, which recommended a sell on Citic Pacific because its management was transforming the company into a Hong Kong-style hong rather than the mainland China red chip it was perceived to be.

  Today, only three of 35 brokerages have sell recommendations on Citic, according to the February edition of The Estimates Directory. UBS is not one of them.

  Another case that has raised concern in the broking community, involves Wang Qi, former head of China research for CEF Securities, who stood up during China Eastern's Hong Kong roadshow last month and complained about the airline's poor service.

  Not everyone understood what he was saying because he was speaking in Putonghua.

   But CEF's name was removed from the list of potential underwriters, sources say.

  CEF Securities chief executive Terry Luk said Mr Wang left for personal reasons.

   He could neither confirm nor deny that CEF, which is part of the Cheung Kong group, originally was part of the underwriting team for China Eastern's recent float.

  Mr Wang had no comment.

  The perceived need to treat some companies with kid gloves is not a problem specific to analysts in Hong Kong.

   Several researchers have been sacrificed in London and New York in moves to appease corporate clients who did not like having their dirty linen aired in a research report.

  Some China analysts appear to be falling prey to the same pressures, according to people in the industry, at a time when China's corporate finance calendar is starting to look more enticing.

  The regional economist at one European investment bank said: 'Internally, it is all down to corporate finance. People are trying to be more active on China deals.

  'Analysts tend to skirt around China. It is surprising what doesn't get said. No one is writing about the potential problems and risks of investing in China.'   Bankers and fund managers are complaining of similar pressures in what they say on China.

  One banker at a European institution said he nearly lost his job after an international press report quoted him saying something negative about a Chinese bank late last year.

   'They demanded my head,' he said.

  The mainland bank was only appeased after much bowing and scraping from the European institution's management.

   A gag order was imposed to avoid further embarrassment, but the banker was not fired.

  Another fund manager, who was quoted last month as suggesting Hong Kong may not be the place to invest this year, has been approached by well-meaning friends and colleagues warning her to tone down her remarks.

  'People are telling me not to be so outspoken, that I should shut up and be more careful,' she said.

   For the sake of her bank, she is considering taking that advice.



Analysts, bankers feel heat on critical China research