Trial Held for Scandalized Ex-Party Boss of Shanghai

The massive Shanghai pension fund scandal has  turned a final page as  Chen Liangyu,  the city’s former party boss and a member of  the Politburo, stood  trial March 24 at a heavily guarded courthouse  in Tianjin. The hearing was closed  to reporters and Chen’s relatives, but sources told Caijing the 50-year-old faced the judge on charges of accepting 2.39 million yuan (US＄ 340,000) in bribes, abusing power and dereliction of duty. A verdict was not announced, but more  than 20 other ex-officials and business executives tied to the scandal were previously jailed.

While in power, Chen was known for promoting cronies who later encouraged his downfall. Allegedly, Chen’s wife and son  received jobs without working, and his brother got  the help needed  to secure valuable land.

Regulation Cuts Unhealthy Ties in Power Sector

Four ministries March 19  jointly  issued a  regulation barring mid-  to high-level employees at  state-owned power distribution grids  from holding stakes in companies that produce the electricity transported by their grids. However, grassroots-level workers may still own shares. Employee shareholding has been encouraged since  the 1980s  to help satisfy  the power sector’s hunger  for capital. Shareholding became a problem, however, after 2002  reforms split  the sector  into generating companies and grids, with  the goal of building a market-oriented  industry. Later, shareholding by executives was recognized as fertile soil for corruption.

The regulation followed more than five years of debates over how to best  limit shareholding. The  latest decision  is considered a practical solution. Officials expect additional regulations  to address similar problems in other sectors such as telecommunication and railway.

BOA Won’t Sell Shares of Construction Bank

The managing director of China Construction Bank  (CCB) discussed plunging real estate prices, stock market volatility, and possible overseas acquisitions during an exclusive  interview with Caijing. Guo Chuqing said mortgage  finance  is a CCB  tradition  that will continue generating yields. The government’s credit  tightening will not harm performance, Guo said, and  infrastructure-related  financing will bolster competitiveness. He said the state-owned bank will consider overseas acquisitions when targets and timing, not just price, are appropriate. He also said Bank of America, which bought 9 percent of CCB  in 2005, has earned big dividends and won’t shrink its stake.

Guo  took  the post  three years ago after his predecessor was ousted for bribery. Under Guo,  the bank improved corporate governance and transparency while specifying roles for party cadres and managers.

Antitrust Specifics Emerge 

After China’s new anti-monopoly  law  takes effect August 1, businesses  trying  to  launch mergers and acquisitions will have  to give regulators detailed  information about  their  financials, stakeholdings, and how proposed deals could affect market concentration. But rules for  these notifications,  including  the circumstances  triggering  the process, have yet  to be determined. Regulators are now working out procedures while accepting opinions from business leaders, including potential foreign investors eyeing deals in China.

The new  regulation will  replace current  rules  for  foreign acquisitions of Chinese companies. Some  foreign company officials say regulators should not set  the bar so  low  that notifications are needed for most deals. From  the outset,  the process has been controversial because businesses fear higher costs.

Gravity returns to A shares

In several months, the A share stock index has fallen from 6100 points to 3400 points. Market experts  reason  that  the A  share previously climbed  from 3400  to 6100 points  thanks  to  the  reform of non-tradable shares, which  tied down almost  two  thirds of companies stocks listed in the Shanghai and Shenzhen bourses. 

However,  the possible negative aspect of  the share  reform – a vast  increase  in shares causing a supply shock –had been neglected. Coupled with an external economic slowdown, the market outlook appears bleak. 

Struck by panic, some  investors sold off and called  for a government-backed bailout. Meanwhile, a bear’s market exposed many wrongdoings  including  insider  trading. Gravity  returned  to provide financial regulators a rare chance to work on infrastructure and fundamentals, benefiting China’s stock markets in the long-run.