Red Capitalism (28 page)

6
See Li Liming, “
Liangnian zhongguo jinrong shengtai gaibianle
, (In two years China’s financial environment has changed),”
The Economic Observer
, August 29, 2005: 10. This failed effort at reform in 2005 was picked up again in the major article by Yang Kaisheng, ICBC’s CEO, in early 2010, “
Wending woguo shangye yinhang ziben chongzu shuiping de jidian sikao
(Several thoughts on stabilizing the capital adequacy levels of our country’s commercial banks,”
21st Century Business Herald
21
, April 13, 2010: 10.

7
It is confusing to translate “corporate bonds,” as there are two types: one controlled by the NDRC and traded in the inter-bank market (
qiyezhai
), and one controlled by the CSRC and traded on the stock exchanges (
gongsizhai
). Zhou’s loophole related to the NDRC regulations.

8
Zhou Xiaochuan, “Learn lessons from the past for the benefit of future endeavor,” Speech at the China Bond Market Development Summit, Beijing, October 20, 2005,
www.pbc.gov.cn/english/detail.asp?col=6500&ID=82

9
See Fang Huilei, Zhang Man, Yu Jing and Zhang Yuzhe, “Scary View from China’s Financing Platforms,”
Caixin Magazine online,
February 5, 2010; and Victor Shih, “Big rock-candy mountain,”
China Economic Quarterly
14(2), June 2010.

10
21st Century Business Herald
21
, April 12, 2010: 6.

11
There is a second interesting attraction to using a bond and interest payments to channel money to the MOF: payment would not require any involvement of CIC’s board of directors, it would simply be business as usual. As the cash flow came in as dividends from its subsidiary banks, CIC’s CFO would simply pay interest when due to the MOF; no formal board decisions or minutes would need to be made. Contrast this with the SASAC.

12
Huijin paid US$22.5 billion each for BOC and CCB and US$15 billion for the ICBC, and US$7 billion for interests in a variety of securities companies. It carries these investments on its books at this same value, notwithstanding that the banks have all been listed and have a market value far above this number.

13
First rumored in November 2009 and then confirmed in April 2010. See Bloomberg, November 11, 2009; and
Caixin
, April 23, 2010;
Asian Investor
, April 1, 2010.

14
This refers to the PBOC, the CSRC, the CBRC, and the China Insurance Regulatory Commission. For the background, see
The Economic Observer
, July 12, 2010: 2.

CHAPTER 6

Western Finance, SOE Reform and China’s Stock Markets

“The debut price [of my IPO] was within expectations, but I am still a wee bit disappointed.”

Chen Biting, Chairman, China Shenhua Energy

October 10, 2007

In capital-raising terms, China’s stock markets pale in comparison to the bank loan and bond markets, but they have been instrumental in creating the country’s companies and, at the same time, lending China the veneer of a modern capitalist economy. Without them, China would have remained for an even longer time without a truly national market for capital. More importantly, its ministries would not have learned at the knee of Goldman Sachs and Morgan Stanley how to use international corporate law and complex transfers of equity shares to build the National Team, a group of state-controlled enterprises of an economic scale never before seen in China. When in 2006 and 2007 these companies began to return home to the Shanghai market for secondary listings, they were able to use their great wealth to reward “friends and family”, those other state enterprises and agencies closely associated with the Party and allowed to take profit from the listing as investors.

This explains the comment by Shenhua’s chairman: his company’s “poor” IPO performance was, perhaps, a disappointment to his supporters. In these listings, company valuations deliberately set too low, biased lottery allocations
¹
and the channeling of money among powerful state entities is clearly documented for all to see. It raises the question, however, of whether China is run, as people believe, by the Communist Party or whether the National Team has subsumed the Party and the government so that it can truly be said that “the business of China is business”. China’s stock markets are not really about money (that comes from the banks): they are about power.

CHINA’S STOCK MARKETS TODAY

On October 7, 1992, a small company that manufactured minibuses completed its IPO on the New York Stock Exchange (NYSE), raising $80 million. This would hardly have been a landmark event except that the company was Chinese and no Chinese company had ever listed its shares outside the country, much less on the NYSE.
²
Wildly oversubscribed, Brilliance China Automotive singlehandedly put China—and most certainly not the
People’s Republic
of China—on the map of global capital. Since that time, the clamor surrounding China’s stock markets makes it seem that New York and London have long since been eclipsed as the world’s most significant markets for equity capital.