A MIGHTY BOOST IN EXPERIMENT ON SPLIT SHARE STRUCTURE
On May 30th, the China Securities Regulatory Commission (CSRC) and the State-owned Assets Supervision and Administration Commission of the State Council jointly promulgated a Document on pilot reform in split share structure. On May 31st, the CSRC issued an announcement of the official launch of the second round of experiment on split share structure, which has been discussed for a long time. Meanwhile, the A-share market in Shanghai is suffering a sharp reduction. Till 13:45 on June 1st, the index reached 1035.90, which was a historically lowest point since September 1998.
The indigestion phenomenon of market with split share structure has persisted for a month. At the same time, the stock index go through a rapid fall in May. After its drop at the pass of Point 1057, it seems general trends that it will go down the Point 1000, which has been considered as the mental bottonline. Therefore, there is a heated argument on the feasibility of stock market segmentation.
In our opinion, the split share structure is one of the prospects in China’s stock market. We should appreciate the efforts of promoting reforms in split share structure made by the supervision authorities. Meanwhile, it should not be subjected to the stock indexes. It is the exclusive objective that the lasting and healthy development of the stock market.
When we choose listed companies on experiment, we should make those companies with outstanding achievement and promising future, even some Blue Chip Share a top priority.
COVER STROY P17
CAN CHERY GET VISIONARY IN USA?
Founder of Visionary Vehicles, Malcolm Bricklin, announced partnership with Chery Automobile Company located in China. Bricklin plans to import a new line of quality vehicles from China as soon as 2007.
According to the deal, privately held Visionary Vehicles has committed to invest $200 million in the production program at Chery for the US market and to introduce 250,000 vehicles in the U.S. by 2007, and a million units a year within another five years.
Vehicles made in China will enter the American market sooner or later, and China will become globally carmaking base one day, which has been consensus of industrial players and analysts. The entrepreneurial Malcolm Bricklin is the first people to open the door. His career is filled with success and failure, and so were his partners. Can he build Visionary?Chery outlets and have a win-win deal in the American market?
CHINA TO SAFEGUARD MILLIONS OF TEXTILE JOBS
To ease the concerns from trade partners, the Finance Ministry unveiled on May 20 a staggering 400 per cent increase on export tariffs on 74 classes of products starting on June 1. But it is a pity that both EU and the US failed to accept the policy. After only 10 days China declared that export tariffs on 81 categories of textile products will be lifted, including the 74 for which 400 per cent increases were announced.
We have to make corresponding policy adjustment since the EU and the US have set controls on Chinese textile exports, said Minister of Commerce Bo Xilai. The latest restrictions imposed by the US side will affect US$2 billion worth of Chinese exports and 160,000 jobs, while the EU action will lead to a loss of US$300 million exports and corresponding jobs.
The adjustment, which is beyond many observers?anticipation against US and EU tariff wall, will help ease the burden on Chinese enterprises, which are already operating on razor-thin profit margins.
DALIAN: BANGALORE IN NORTHEAST ASIA
Dalian Software Park has been developed to be the Bangalore in Northeast Asia from scratch during the past seven years. Xia Deren, mayor of Dalian told the Observer, Dalian, the former oilindustry, shipbuilding and manufacturing base, has seen its future of software outsourcing.?In history, Dalian was once occupied by Japanese. A long-time colonization is a mental scar and a traumatic experience for Dalian. For this reason, Dalian’software industry is closely related with Japan. Dalian exported its software products at 200 million dollars, especially to Japan and outsourcing is its core service.
But compared with Bangalore, Dalian still has a long way to go in the aspect of size and quality of its IT technicians. HISOFT CEO Li Yuanming said, With their developed outsourcing services, Indian enterprises are college students while Dian’s are pupils.?
HSBC”S 140TH ANNIVERSARY
The year of 2005 marks the 140th anniversary of the establishment of HSBC.
Over the past century, HSBC”s business in the China mainland, especially Shanghai has gone from strength to strength.HSBC has furthered its development on the Chinese mainland following the nation”s introduction of the opening up and refarm policy Right after taking office.
Vincent HC Cheng, the first Chinese native chairman of HSBC visited Shanghai, which is regarded as the key city to HSBC?future development.
So far, HSBC has made an investment of 30 billion yuan in China mainland and become one of the largest financial institutions among all the foreign banks in China. As China will open private RMB business to foreign bank branches in 2006, many foreign banks think it is an opportunity to expand their share in China market. As time goes by, HSBC, Standard Chartered, and ABN AMRO are speeding up their expasion of network of branches all over China.
CHINESE TVMAKERS HIT OUT IN UNIO
Nine top TV-makers took part in television enterprises summit in Beijing on May 28th. The nine companies, including TCL, Changhong, Skyworth, Konka, Hisense, Haier, Xoceco, Panda and SVA have reached seven points of consensus in the summit and announced building a committee to design Chinese TV patent and standard.
The nine companies held a similar summit last time in 2000, calling for price protection when facing a price war. Do they reunite this time? Unlike the last summit, The whole industry is hitting out initiatively.?Skyworth vice president Shen Jianming told the Observer.
The whole television industry is transferring into flat from CRT. On this turning point, fors Chinese or foreign enterprises, whoever holds the top technology dominates the market.
SPLIT SHARE STRUCTURE REVEALS MERIT IN VALUE INVESTMENT
Ba Shusong（Deputy Director General of the Financial Research Institute under the DRC）
Under the circumstance of split share structure, it is hardly possible for investors to process the actual value investment, even for those institutional investors, who have been confirmedly considering that they are going through value investment, such as the Qualified Foreign Institutional Investor (QFII). As a matter of fact, it is nothing but simulative value investment. Heretofore, it is said that quite a few of the institutional investors used to carry out so-called value investment ignoring such a system defect of stock market segmentation.
When we embark on the settlement of this problem, it’s natural that the simulative value investment is exposed to challenges.
It’s a general trend that there is variance in shareholder interests between non-floatable shares and floatable shares, which is also the basis when we make lots of judgment on stock market.
If we extend such an attitude to the pilot reform in split share structure, it might bring along a great deal of misunderstanding.
MONETARISM GAINING GROUND?
Dennis Z. Yue（V.P. of Chia Tai International）
On the debate of RMB exchange rate between China and west, the exchange rate of RMB is combined with trade issue by American politicians. They think that China intentionally underestimated the exchange rate of RMB on the condition of not getting advantage terms of trade by tariff or non-
tariff wall after entering WTO, thus enhancing the global competition of Chinese products.
But they ignored the exchange rate as an important part of financial system. Even if China makes profits from the current currency price and change the fixed exchange rate, or makes appreciation under the fixed exchange rate, the financial system must endure shock wave.
Probable financial risks include monetary aggregates changes, loan supply changes, currency structure changes, and even changes of real estate, bond market and stock market.
FX MARKET DEVELOPMENT AND THE CNY
Stephen Green（CEO of HSBC”s Group）
On May 18th eight new currency pairs?will be introduced into China’s Foreign Exchange Trading System (CFETS). This will mean transactions involving EUR/USD, AUD/USD,GBP/USD, USD/JPY, USD/CAD, USD/CHF, USD/HKD and EUR/JPY will be traded on a new CFETS platform. The event has triggered considerable speculation about whether the USD/CNY currency peg will also be reformed on the same day. While we believe a moderate band widening is imminent, there is little logic in this move being tied to the CFETS expansion.When CFETS was established in 1994, it hosts only four currency pairs? What has all this to do with CNY reform? Not a lot. The new pairs is not a new business for banks in China. The move does suggest though that the PBoC is ambitious to concentrate China’s FX market on one platform where trades can be monitored, rather than allowing it to be dispersed through OTC transactions.
A STABLE STEP TOWARDS SUCCESS
Deng ti shun（Director of China Research Center of Goldman Sachs. Global Strategy Research）
The China Securities Regulatory Commission (CSRC) has launched a provisional program on split share structure. Even though the realization of the whole program requires quite a long time, we are confident that it contributes to establishing a basic pattern for the split share structure in domestic listed companies. In our opinion, it is more important to cancel the issue of non-floatable shares in Initial Public Offerings (IPOs), which will bring consistency between Chinese regulations with international mature conventions, and will further rescue investors from concentrating on intractable problems of non-floatable shares.
We believe the CSRC.s market-based program sets up a basic framework for resolving the split share structure issue for domestic listed companies, although it might take a long time to complete the entire share disposal program.