Conference Presentation, Panel
Chinese Market Culture: How Well Can You Know a Company?
- The new administrative regime may moderate state sector expansion from the past decade, yet the state sector is predicted to remain stronger than ever, comprising approximately 50% of the economy with 115,000 state-owned enterprises (SOEs), including 117 central monopolies in Beijing that may lack efficiency.
- Diligence standards will rise to require forensic accounting steps due to risks involving official personnel shifts that can terminate project investment, potential forced sales of companies by the central government due to local corruption, and a lack of one-to-one correlation between the moderately performing economy and the "in the tank" markets.
- Foreign capital faces significant hurdles, including a six-to-nine-month waiting period for government permission while local investors face none, alongside regulations that are expected to remain at least as onerous for capital imports as for exports.
- Transparency improvements are anticipated over time, with international firms setting up RMB-denominated funds in locations like Shanghai and the real estate sector, now 15 years old, potentially increasing transparency through the securities business and the IMF, though Western markets have a 100-year development history.
- The court system lacks independence, with judges potentially directed by the government to prioritize policy over law in high-stakes cases, including decisions to prevent asset auctions to avoid social unrest or transfer cases to Beijing to counter local protectionism.
- Judicial leadership is shifting with the Supreme Court head expected to be a lawyer rather than a retired military official, though sovereignty concerns may prevent US PCAOB inspections every three years, risking deregistration of accounting firms if state secrets are invoked regarding SOE audits.
- Market volatility is expected to persist despite China heading toward becoming the world's largest economy, while local governments may be compelled to implement real estate taxes to address debt and end reliance on land-sale revenue.
- Future policy reforms, including interest rate adjustments and housing registration changes, are anticipated to be announced during the People's Bank of China's third plenum meeting in the fall (October and November).
- Access to official records is expected to decrease further at the State Administration of Industry Commerce, with Hong Kong anticipated to tighten access to records held behind British Virgin Islands holding companies.