Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
Alibaba’s plan to split its US$200 billion company into six entities with IPO potential unlocks massive opportunities for investors, says business analyst Shaun Rein to CNA. It also aligns nicely with Xi Jinping’s intention to make China’s economy, more competitive by dividing up the Alibaba giant, he adds.
The China Securities Regulatory Commission (CSRC) has proposed over Christmas rules for Chinese firms who want to apply for an IPO at overseas stock markets. But those new rules lack much-needed clarity, says financial expert Winston Wenyan Ma at CNBC. “Domestic companies need to comply with relevant provisions in the areas of foreign investment, cybersecurity and data security, a draft said, without much elaboration,” writes CNBC.
CNBC:
The CSRC’s proposed rules said an overseas listing could be stopped if authorities deemed it a threat to national security. Domestic companies need to comply with relevant provisions in the areas of foreign investment, cybersecurity and data security, a draft said, without much elaboration.
“The details of rule enforcement still need further observation, especially the supervisory scope of other related ministry regulators, in addition to the CSRC,” said Winston Ma, adjunct professor of law at New York University and co-author of the book “The Hunt for Unicorns: How Sovereign Funds Are Reshaping Investment in the Digital Economy.”
Companies in China are subject to the oversight of several ministries, ranging from industry-specific ones to ones focused on particular aspects of operations such as foreign exchange.
The weakness in China shares may offer a buying opportunity, but there are risks to consider, says Arthur Kroeber, head of research at Gavekal Research, an investment consultancy. “We now know this is a regulatory minefield, and those who expose themselves to the sector are taking on a lot of volatility.” He adds that “If your horizon is long term, this is going to be one of the growth stories of the next decade and you have to ride it out. But if you are more short term, you may say it’s too complicated and come back in a year when things have calmed down.”
Just a week after Didi’s massive IPO at the US stock market, the company faces a crackdown by China’s authorities. Business analyst Ben Cavender sees a hit to other Chinese firms, contemplating a US IPO: go to one of China’s stock markets to avoid problems, he tells at RTHK.
RTHK:
Regulators have ordered the country’s biggest ride-hailing firm, Didi, to be removed from app stores and accused it of violating rules on the use of personal data.
It comes a week after Didi raised billions of dollars when its shares were listed on the New York stock exchange for the first time.
“I think there’s potentially some subtext here which is basically saying ‘if you’re going to be a big tech company’ and you want to (do an) IPO, you’d better be doing it on the mainland'”, Ben Cavender, the principal at China Market Research Group, told RTHK’s MoneyTalk programme.
Cavender said he believed the government wanted “to tighten up its access to data that’s being collected while at the same time sort of trying to codify a little bit better what kind of data practices are actually OK in China”.
He added that the government is sending a message that it wanted more control over money flows.
He said the days of China initial public offerings (IPOs) being a sure thing were over for investors, and described the development as worrisome.
Cavender also said there was increased pressure “about this idea of consumer rights and what data actually is being collected.
“So I think you’re going to see companies like this that really do peddle in data come under a lot more scrutiny going forward,” he said.
China’s tech giants have in recent months been swept up in a regulatory crackdown — hitting companies ranging from Alibaba to Meituan — by government authorities fearful of their supersized influence on consumers.
Zhong Shanshan, the owner of bottled water producer Nongfu became through its IPO suddenly one of the wealthiest people in China, in a time when IT in a post-COVID economy seems to be leading, says Rupert Hoogewerf, chairman of Hurun, the China Rich List to the China Daily. Consumption tycoons have become the winners in post-COVID China, he adds.
The China Daily:
Zhong, the 66-year-old former journalist-turned-health product entrepreneur, owns 84.4 percent of Nongfu’s shares. The share surge pushed his fortune to more than $57 billion, calculated as per Nongfu’s opening price on Tuesday. At one point, Zhong’s wealth even overtook that of Jack Ma’s $51.4 billion and Pony Ma’s $56.7 billion, before falling.
Beijing Wantai Biological Pharmacy, in which Zhong is the biggest shareholder, is one of the leading manufacturers of infectious disease diagnostics and has been traded on the Shanghai Stock Exchange since early this year.
Rupert Hoogewerf, chairman and chief researcher of Hurun Report, said Zhong is the 17th Chinese businessman to take the No 1 position in terms of wealth during the last two decades. He is also a good example of the dynamism of the Chinese economy, he said.
“Who would have thought that Zhong, a man who sells bottled water, in the age of IT and post-COVID economy, could actually become the richest man in China overtaking Jack Ma and Pony Ma,” said Hoogewerf.
“Zhong is pretty special. He has built two businesses, both of which have valuations of over $10 billion. Very few people in China have managed to build two $10 billion businesses from scratch.”
Hoogewerf said after the epidemic, the global economy has suffered significantly, with China being the sole exception. “In China, many consumer tycoons have not just grown but flourished in the past six months possibly because a lot of investors looked for relatively safe havens. Traditional leaders in the consumer sector were able to give investors that reassurance,” he said.
A turf war between the Securities and Futures Commission (SFC) in Hong Kong and Hong Kong Exchanges and Clearing (HKEx) over who should regulate new listings in Hong Kong proves selfregulating of the financial industry does not work, writes accounting professor Paul Gillis on his website.
Paul Gillis:
Hong Kong is somewhat unusual since regulation of listings and auditors has been delegated to the regulated, a form of regulatory capture. The HKEx regulates listed companies, with the Hong Kong Institute of CPAs (HKICPAs) regulating auditors, leaving government regulators in a supporting role. Unsurprising, self-regulation rarely works, since market participants rarely take actions against themselves.
Self-regulation is usually the preference of the regulated professions because professionals get the benefits of regulation but control any disadvantages of regulation. Professionals always seek closure – to limit market access to newcomers. In Hong Kong, CPAs must be licensed by the HKICPAs, meaning that only members can provide audit services. Yet while limiting market access and competition, the HKICPAs has done a pathetic job regulating its members. Fines, when they happen, are insignificant and even serious violations by the Big Four get only a wrist slap.
The failure to effectively regulate listings and auditors may have contributed to recent failures of IPOs. Tianhe Chemicals Group Limited listed on the Hong Kong exchange in May, 2014 only to be brought to its knees by allegations by short selling research firm Anonymous Analytics that the company was a fraud. The stock remains suspended, which appears to be at least partly related to the inability of the company’s new auditors to issue an opinion.
Weak regulation in Hong Kong led the European Union to withdraw regulatory equivalency for Hong Kong with respect to auditor inspections. Under regulatory equivalency, EU regulators would be able to rely on the work of Hong Kong regulators as if it were its own. The removal of regulatory equivalency was a major embarrassment for Hong Kong, which moved to restructure audit regulation by transferring most functions to the Financial Reporting Council. Unfortunately, these reforms appear to have stalled since nothing has happened since a public consultation was concluded in 2015.
