Money Matters

Capitalism with Chinese characteristics is very much here to stay in Hong Kong

PUBLISHED : Tuesday, 27 June, 2017, 7:10pm
UPDATED : Tuesday, 27 June, 2017, 11:02pm

Reminiscing about Hong Kong’s market changes since the city’s return to Chinese sovereignty had never been Money Matter’s plan, until the arrival of two emails, one from a reader and another from a regulator.

Both are responding to an early piece on the change of the Articles of Association by dozens of Chinese state-owned enterprises listed in Hong Kong to make the Communist Party Committee their key governing body.

The column questioned why Hong Kong’s market watchdog agencies have not asked the party committee members to sign an undertaking with their fellow directors to comply with our rules and laws, despite their powerful positions and access to insider information.

The hammer and sickle are making their way into some Hong Kong public companies

A reader wrote: “She [Money Matters] will be abducted and disappear in mystery.” Two others called the columnist “brave.”

It’s disturbing not because it concerned the columnist’s personal safety. It’s disturbing because it speaks of the deafening fear among members of the public, even those in the financial community, in challenging Beijing-related issues.

Yet, this is not even a column that questioned the party’s legitimacy in “advising” the operation of state firms. It’s only a factual account of what’s in the public domain and a contrast between mainland Chinese practice and local laws. It’s about bringing a political reality under the ambit of the law.

The reality is that “don’t tell” has now become the new normal. Speaking up risks the loss of business and insider information. The joke is that every China analyst, economist and even fund manager carries an expiry date like a can of sardines, depending on the survival of his or her contacts.

It is hard to swim against the current when one’s estimates or recommendation will turn into rubbish overnight with a policy change, say by an order to merge, or an increase in tax rebates.

This tilt of power did happen before. No one would be too critical about Jardine in the colonial days and Li Ka-shing in his heyday. Yet, when China is on the other side of the balance, it is a very different thing.

So vote with your feet, not your mouth.

What about the regulators who is paid to safeguard investors’ interest? That brings us to the second email.

A long-serving regulator wrote: “We’ve been accepting mainland state-owned enterprises since two decades ago and investors should have been aware of the companies’ characteristics. By the same token, investors of overseas companies should also be aware of the unique characteristics of overseas issuers.”

Translation: It’s China. Why the fuss?

Therefore, a regulator spokesperson would say that the party committee members are “usually” company directors and therefore abide by local laws; though they have not been given any party committee membership list.

Therefore, our regulators did nothing when Beijing demanded that Hong Kong-listed Chinese companies should be audited by mainland accountancy firms; though that would mean their access to audit papers will be cut off.

Therefore, state firms have been allowed to suspend trading for six months or more, until Beijing has finalised its plan of merging the giants.

That is a far cry from the 90s, when regulators would ask state firms to divulge the market impact of specific policy changes such as an order to build and sell staff quarters at discount; and demanded a state bank to investigate into a bribe-related loan.

“We used to be very nervous with every announcement, wondering what the regulator would ask. Not any more,” said a recently retired chairman of a state firm.

Call it capitalism with Chinese characteristics. It’s only a pragmatic compromise when you don’t have much choice, according to some veteran regulators.

What’s next? The optimists say the future is bright, as China opens up via the Stock and Bond Connects schemes to Hong Kong, and is encouraged to moves towards international best practice.

That sounds similar. That was the belief during the 90s.