| |
Stock fiasco speeds Hong Kong's
decline
By Gary LaMoshi
HONG
KONG - Last month, Japan's Fuji television network
closed its bureau in Hong Kong. "There's no news," Fuji
explained.
That statement came as a terrible
blow to all of us who lived through the glory days when
Hong Kong seemed to be the center of the universe,
before the return to Chinese sovereignty and the
concurrent regional economic crash in July 1997. But
Fuji was wrong: there's plenty of news in Hong Kong -
it's just all bad.
The mess over delisting
so-called penny stocks, and the subsequent report
whitewashing the disaster, is the latest illustration of
how Hong Kong's great and good are hastening its decline
into irrelevance.
On July 25, the Stock Exchange
of Hong Kong proposed new eligibility rules for listing
on the city's one and only stock market. The new rules
proposed that stocks priced under HK$0.50 (US$0.064) for
30 days be removed from the market. On July 26, this
threat of delisting sent microcap investors scrambling
for the exits. When the dust cleared, investors had lost
more than HK$10 billion. Rumors flew that several small
brokers faced ruin due to margin loan exposure on stocks
hit by the selloff.
Market authorities hurriedly
withdrew the plan and promised a new, improved version
in October. They also promised an investigation into
what went wrong.
The Panel of Inquiry on the
Penny Stocks Incident would provide the first test of
Hong Kong's new "ministerial system" under which Chief
Executive Tung Chee-hwa's appointees, rather than civil
servants, have responsibility for policymaking. Tung
touted the system as a way to bring greater
accountability to government, even though he is
accountable to no one in Hong Kong.
The panel's
report, released last week, said no one was to blame for
the fiasco. It said a series of misjudgments and
miscommunications resulted in a "costly lesson" for Hong
Kong. The stock exchange apologized, not for its own
actions, but for the "adverse market reaction" to the
proposals. Regulators contend, incredibly, that they did
not anticipate a massive selloff when they threatened to
leave microcap stockowners without a market on which to
trade their shares.
The newly appointed
secretary for financial services and treasury, Frederick
Ma, was the only official singled out for criticism, but
not for failing to stop the stock exchange from
announcing its wrongheaded proposal. Ma was rebuked for
a "sub-par" performance in a legislative hearing, at
which he admitted not reading every document in the
"mountain" of papers piling in his office since his July
1 appointment. The inquiry did not endorse honesty as
the best policy, as well as demonstrating a fuzzy
understanding of accountability.
Let's back up
to look at the reasons the stock exchange tried to move
against penny stocks in the first place. Besides a price
under HK$0.50, the proposal included several other
conditions that could trigger delisting, including a
market capitalization below HK$30 million for 30 days,
three consecutive years of losses with negative equity
or a market cap below HK$50 million, an adverse audit
opinion, or the company's receivership or liquidation.
The stated goal of the stock exchange was to list only
sound companies, to avoid corporate fraud and scandals
such as those plaguing US markets.
When Wall
Street markets tried to shore up their reputations in
the wake of Enron et al, they issued regulations on the
composition of the boards of directors, auditor and
audit committee independence, and other corporate
governance improvements to give shareholders greater
protection against insider manipulation. Trading price
was never an issue (although US and Hong Kong exchanges
do have long-standing but rarely enforced rules for
delisting based on trading prices).
Tough
measures on governance wouldn't fly in Hong Kong, where
price manipulation is a fact of trading life and
controlling shareholders exploit minority investors with
impunity (and with regulators' implicit endorsement,
since they fail to take steps to prevent abuses). So
instead, the regulators moved against stocks on the
basis of price, a criterion that may have little
relation to good governance.
Investor advocate
David Webb, editor of Webb-site.com, contends that the
new rules were an attempt to make the privately owned
stock exchange more profitable. Small cap stocks are
money-losers for the market, generating small trading
fees and requiring no less attention than heavily traded
market movers.
Webb, a former investment banker,
also sees a conflict in allowing the exchange to
continue to make its own listing rules while it tries to
make profits. When London's stock market was privatized,
listing regulations became the government's
responsibility, though for-profit markets in Singapore
and Australia continue to make their own listing rules.
So Webb chalks up the penny-stock case to Hong
Kong's brand of crony capitalism, in which the
government and big money cooperate for the greater glory
of Hong Kong, just as they did before the handover from
British to Chinese sovereignty. With the economy
sputtering along with only brief bursts of growth since
the 1997 economic crisis, that model has failed to
deliver the way it used to.
An alternative
explanation is even more troubling. In his March budget
address, Financial Secretary Anthony Leung announced
that Hong Kong planned to shift away from its previous
policy of "positive non-interventionism" that sought to
minimize the government's role in the economy. To some
extent, that policy and the declarations by the Heritage
Foundation and others of Hong Kong as the world's freest
economy were always myths: the government controls and
manipulates the land market, and property is the
foundation of nearly all local fortunes. Nevertheless, a
simple tax code and minimal regulation were hallmarks of
positive non-interventionism.
Today, there are
examples and even more proposals for all sorts of
government intervention in the economy, including tax
breaks for various industries and a subsidized Disney
theme park in which the government is an equity partner,
to try to combat sluggish growth. Whether the old way
can still work, or whether Hong Kong's prosperity was
due solely to its unique position as the gateway to
China back when a gateway was necessary, we may never
know.
The penny-stock fiasco is a textbook
example of "non-positive interventionism". If other
government measures to improve the economy are as poorly
conceived and clumsily executed - and then as easily
excused - as this debacle, Hong Kong's economy, its
standing as an international city, and its reputation as
a safe harbor for investment may never recover.
And Fuji TV may regret its decision to pull out
and miss the upcoming disaster footage.
(©2002
Asia Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
|
| |
|
|
 |
|
