Hong Kong finally breaks the ice with China's top securities regulator

In almost all the time since he took office in 2003 Mr Shang, chairman of the China Securities Regulatory Commission, had had nothing to say about the Hong Kong stock market in public. This was despite thousands of handshakes with Hong Kong officials, open support for our market from Premier Wen Jiabao and all the hype that accompanied the mainland enterprises that came here to list. Two weeks ago, Mr Shang had an epiphany. His coolness was transformed into warmth. Meeting the new chairman of our Securities and Futures Commission, Eddy Fong, Mr Shang showered praise on Hong Kong. Let's call his statement the Three Supports. The CSRC supports Hong Kong's status as an international financial centre; the listing of mainland enterprises in Hong Kong; and the usage of domestic and overseas securities markets by mainland companies in pursuing reforms, he said. Hong Kong listings, he added, had brought mainland companies money, to be sure, but most importantly an improvement in corporate governance and competitiveness. He also thanked the Securities and Futures Commission for its support in the implementation of state share reform and for the staff secondment programme that links the two regulators in human terms. Mr Shang's words may sound familiar. Many mainland officials have said similar things. But when the speaker is a famously low-key bureaucrat and his statement is posted on the CSRC website for all to see the day after a private meeting, it means a lot. China's top securities regulator, trained in the mainland, had never been a fan of Hong Kong. He had always seen it as a competitor. A number of reforms seen as likely to aid Hong Kong were held up by his strong opposition. Among them was the introduction of the Qualified Domestic Institutional Investor programme that allows mainlanders to invest here and overseas. So why the change of heart for this Hong Kong sceptic of long standing? It has a lot to do with a report that Industrial and Commercial Bank of China sent to the State Council detailing its experience with its recent simultaneous Hong Kong and Shanghai share offerings. For mainland bureaucrats accustomed to seeing Hong Kong as the lazy boy whom daddy favours at the expense of a more diligent and capable brother, the report is a wake-up call. It contrasts the two markets' approaches in many areas, from the first meetings of the bank's management with fund managers to the final pricing of the stock. While mainland fund managers were interested mainly in the price of the shares, their Hong Kong counterparts subjected ICBC to a 360-degree grilling. No stone was left unturned. Every new day brought pertinent questions that had never occurred to the management before. The process amounted to a rethink of every aspect of the bank, from its corporate governance to its strategy. And the Hong Kong market's greater depth is not just a question of expertise but of appetite too. To sell in Shanghai the shares had to be priced lower. The bank had to sacrifice US$$5 billion as a result. Until now mainlanders could explain away the deficiencies of their markets by pointing to the time lag between domestic and overseas listings. Now the simultaneous Hong Kong-Shanghai listing allows for a head-on comparison of the two markets. No more excuses. Yet in China, facing facts is easier when the timing is right. Imagine if Mr Shang had sung his Three Supports hymn of praise while the Shanghai A-Share Index was at 1,500. The criticism from domestic investors and players would have been deafening. The successful reform of state shares and the subsequent stellar performance of the mainland stock markets have given Mr Shang the credit and the confidence he needed to show his generous side to Hong Kong. Mr Fong (pictured with Mr Shang, right) could not have received a better welcoming gift than Mr Shang's pledge of support. Ever since his appointment last month, people had questioned whether he enjoyed sufficient credibility in Beijing. Yet an insider said: Mr Fong is a Chinese and Mr Shang has not met a Mandarin-speaking Chinese counterpart from Hong Kong for many years. He knows the stock market. He is humble and sincere in building relationships with the CSRC, not with the officials above it. With hard work, good timing and the right person, Hong Kong has finally broken the ice with the top securities regulator in the north. For the sake of Hong Kong's future dealings with mainland officials, this is a very illuminating experience. Copyright (c) 2006. South China Morning Post Publishers Ltd. All rights reserved.

South China Morning Post Saturday, December 9 2006 20061209