The mainland's largest power equipment manufacturer, Shanghai
Electric Group Co Ltd, confirmed yesterday that its chairman Wang
Chengming had been detained by the authorities and was under
investigation. He's the third board member to be detained in the
last two weeks.
"Wang is suspected of seriously violating certain rules and
regulations of the Communist Party of China and is therefore being
detained for further investigations," the company, which used to be
actively pursued by Hong Kong investment funds, said in a statement
made yesterday to the Hong Kong Stock Exchange.
Last week, Executive Director Han Guozhang and Vice Chairman
Zhang Rongkun were detained for questioning.
Trading in Shanghai Electric shares was suspended on the Hong
Kong Stock Exchange yesterday. This is the second such suspension
since the detention of Han and Zhang was announced last week.
Shanghai Electric's shares stood at HK$2.55 (30 US cents) before
the last suspension.
Hong Kong newspapers reported that Han was allegedly involved in
misappropriating millions of yuan in employee benefits and pension
funds in 2004. Han allegedly pocketed the money by making claims in
the name of non-existent "laid-off workers."
Zhang has reportedly been under investigation since July 17 over
the alleged illegal borrowing of 3.2 billion yuan (US$402 million)
when he was in charge of Shanghai Fuxi Investment that holds an
8.15 percent stake in Shanghai Electric. Media reports said a local
court had frozen Fuxi's assets.
Hong Kong-based analysts said the scandal would tarnish the
company's image but they applauded the efforts of the mainland
authorities to crack down on corruption and improve corporate
governance.
Andes Cheng, associate director of South China Research, said
the incident would inevitably harm investor confidence especially
in Hong Kong. "It might be the tip of an iceberg," he said. "More
and more scandals could be uncovered."
He believed the central government would step up its efforts to
crack down on corporate embezzlement and fraud. "Although such a
move would have an impact on the market it could improve the
operation of mainland companies and boost overseas investors'
long-term confidence," he said.
Terence Chong, a professor at the Chinese University of Hong
Kong, said such a crackdown would send a positive signal to the
market. "Mainland companies used to be known for their poor
corporate governance and this incident points to the central
government's determination to put this right," he said.
"However, mainland companies' corporate governance remains far
from the international level," added Chong. "The mainland's
accounting standards should ultimately reach global levels."
Analysts suggested investors not desert Shanghai Electric
because they have more confidence in state-owned firms than private
businesses.
"When a state-owned company goes bankrupt government
shareholders will take the responsibility for bailing out minority
shareholders, said Chong. "But if a private company goes under,
minority shareholders may lose everything."
Fu Hung-man, dealing director of Polaris Securities, said the
incident was not likely to dampen investors' enthusiasm for
Shanghai Electric. "Investors are so irrational and myopic
sometimes many of them even don't know who is the chairman of the
company they've invested in."
(China Daily August 16, 2006)