WHILE the Baoan-Yanzhong takeover war, the first of its kind in China, has manifested the weakness of its fledgling securities law, the mainland securities watchdog deserves some praise for its regulatory role in the saga. China Securities Regulatory Commission (CSRC) acted swiftly on complaints from the Shanghai-listed Yanzhong Industrial in relation to the corporate raid by its Shenzhen counterpart, Baoan Group. In a statement issued on Friday, which must offer some hope to both overseas and domestic investors, CSRC censored and fined the predator for its apparent breach of the interim regulations on the Administration of the Issue and Trading of Shares. Not only has this action demonstrated that the regulatory authorities are prepared to bare their teeth, it has also shown that they are also prepared to stick to the interim regulations and protect the interests of China's investing public. The rule in question is Chapter 4, Article 47, which requires any person who legally holds five per cent or more of a listed company to report the fact in writing to the company, the regulators, and the securities exchange within three working days. Further, it stipulates that any additional change above two per cent must also be reported. However, Baoan failed to announce it had bought a five per cent stake in Yanzhong and it only made its purchase public when it already had a 17.07 per cent interest. It is clear that CSRC has tried its best to tread carefully on a matter which will set a precedent for all other takeover battles in China. For the first time, control of a corporation and its assets is on the verge of changing hands without the involvement of the state. With China's private sector economy assuming increasing importance, the Baoan-Yanzhong takeover war is certain to be followed by many others. It is, perhaps, reassuring to read, from the beginning of the reprimand statement, that it is normal for a legal entity to buy large slabs of another. And the takeover bid is allowed, so long as it is conducted within the relevant laws and regulations. Despite all the punishment, CSRC has fallen short of barring Baoan from buying more Yanzhong shares in its bid to become the new largest shareholder in the Shanghai company. It highlights the regulators' endeavour to avoid doing anything to suffocate the development of the Chinese stock markets. Obviously, the Baoan-Yanzhong takeover battle has exposed the inadequacies of China's securities law, which lacks mergers and acquisitions regulations crucial to all developed financial markets overseas. For instance, in case of the Yanzhong shares, the acquisition was done through subsidiaries and associated companies of Baoan, as well as some ''friendly parties''. Under Chinese law, there is no restriction on acting in concert, which is in stark contrast with Hong Kong rules, which require disclosure of parties acting in this manner.
