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Regulations Sort out Cheats

Investors who fancy making an illegal killing on the country's bourses may find the idea groundless with China's increasingly-stringent supervision of the markets.

Since 2001, a number of companies have come to the attention of the general public for being associated with dodgy dealings. Appropriately, they have since been dealt with accordingly.

"More culprits were caught not because they just came into being that year but because the China Securities Regulatory Commission tightened its supervision of the market. That put those wrongdoers in the spotlight," said Haitong Securities analyst Cheng Zhengrong.

Two years ago, five share price manipulators in the Shenzhen-listed Yorkpoint Science and Technology Co Ltd were sentenced to up to 3 1/2 years in jail.

The company represented one of the most notorious cases of share price manipulation in China's two stock markets, home to more than 1,200 listed firms, in recent years.

Resulting from the manipulation of four obscure consulting firms, York point's price skyrocketed from 7.55 yuan (91 US cents) to 126.31 yuan during the period from 1998 to 2000.

Four consulting firms were later found to have links with York point's senior executives, according to findings released by the regulatory commission.

York point was not alone on the list of those seeking profit through committing misdemeanor.

In July, a small investor sued the Shenzhen-listed Sanjiu Medical and Pharmaceutical Co Ltd's board chairman. He claimed that Sanjiu's parent company had embezzled money from the drug manufacturer, hurting small shareholders.

Sanjiu was found by the CSRC in September 2001 to have embezzled approximately 2.8 billion yuan through its major shareholders, or nearly 96 percent of the net assets of the listed subsidiary.

"What China's stock market lacks is not capital but ample investment confidence," said Haitong's Cheng. "Such scandals dampen investors' enthusiasm and hurts their confidence in the market."

The government's supervision of the market, however, has helped to curb disobedience.

In August, China Merchants Bank disclosed its decision to sell 10 billion yuan of convertible bonds. The move was met with suspicion that the Shanghai-listed lender was using the bourse as an automatic teller machine to collect money wantonly.

Industry analysts found 350 million yuan (US$42 million) of convertible bonds a reasonable amount for the homegrown bank.

The government's compulsive information disclosure requirement has, to a certain extent, helped to regulate the market, analysts said.

"The CSRC's supervision will help to crack down on market excesses in China's stock market and protect the interest of general investors," Cheng said.

Shang Fulin, China Securities Regulatory Commission chairman, said recently: "We will try to solve the structural problems while developing the country's capital market to protect the investors' interest and push forward the market's stable development."

Cheng added China's stock markets would see more robust development with a strengthened supervision system, although that may withhold a repeat of high-flying share prices, which occurred several years ago.

(Shanghai Daily October 28, 2003)


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