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China Stock Market Culling out "Rotten Apples"
One rotten apple, if not culled out in time, will make all of a basketful of apples go bad. This is the "rotten apple effect". China stock market did not know this simple effect until it got learned from its 10 years of experience, especially the lessons over the last two years after enforcing its "Securities Law". Since this year, especially the second half of the year, the supervision departments were determined to rid the country's stock market of all "rotten apples" from among the listed companies so as to prevent the "effect" from raging.
Incomplete statistics here show that since late July this year, eleven listed companies have been investigated and prosecuted by China Securities Regulatory Commission (CSRC) for improper listing operation against regulations. Nearly 30 companies have been condemned by Shanghai and Shenzhen Stock Exchanges. Among these are some companies that create false career records such as Guangxia (Yinchuan) Industry Co. Ltd., Zhengzhou Baiwen Co Ltd., Macat, etc., and hide important information on guarantee and associated transaction, such as Huafang Companyˇ˘Mailyard, MACRO. Some broke the regulations on trust investment, such as Liaohe Oilfield, Unicom Guomai Communications, etc. Twenty-three companies failed to release medium-term record alarm bulletin in time. The persons in charge of the listed companies and agencies which involved in the fraud cases of Guangxia (Yinchuan) Industry, Zhengzhou Baiwen and Macat have been handed over to the judiciary for prosecution of criminal responsibility. The supervision and management momentum and frequency are seldom seen in the history of China's stock market, which fully manifest the clear-cut attitude and unalterable stance of the CSRC in striking the behavior against laws and regulations vigorously and strictly.
A series of illegal and fraud cases have produced great repercussions in China's securities market. Moreover, a thing as found to people's surprise is that some agency institutions including lawyers' offices, accountant's offices and stockbrokers even gang up with the listed companies practicing fraud. This is an extremely serious problem plaguing China's stock market.
Sanjiu Medicine got listed just over one year ago. Now, its large shareholders and related institutions have taken up over 2.5 billion yuan, accounting for 96 percent of its whole net assets. This has badly violated the benefits of middle and small investors and directly threatened the security of assets of the listed companies. MACRO made guarantee for its former large shareholders for a loan of 75.048 million yuan in June 1999. Till now, it still shoulders the guarantee for 40.820 million yuan remained for its former large shareholders. With such a huge amount of guarantee on hand, Macro absolutely presents great risks. However, it even failed to fulfill the obligation to release related information in time. In this way, Macro has seriously violated the "Regulation of Listing". In addition, just in the first two days after Huafang Company got listed, the 85.7421 million shares of the company held by Huacheng Investment, the company's largest shareholder, were seized. All of these problems reflect the severely improper operation by listed companies. Yet before the problems were exposed, some listed companies just regarded the information-releasing regulations as a trifling matter and did every thing they can to conceal and deceive the public. Directors of the companies even banished their responsibility and credit from their mind. All of these will certainly lead to huge systematic risks if without strict supervision and management.
It is impossible to restrain and standardize the capital market only with norms and ethics when the market is just under the process of improvement. With more and more "rotten apples" eliminated, people have been enabled to see the determination of the authorities in strengthening supervision over the stock market, improved operations by listed companies and the prospect to bring China's stock market in line with international standards.
By PD Online Staff Du Minghua
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