Second, the confidence crisis can be ascribed to several reasons. Some Chinese firms were listed by fraud; some were deceived by malignant intermediaries due to lack of experience or expertise in international listing and financing. Finally, internal problems within the capital market also contributed to the crisis.

In a nutshell, although triggered by strict supervision of overseas markets and fueled by speculation, the confidence crisis reflected differences in the Chinese and American corporate cultures and legal systems. The crisis damaged the image of Chinese businesses and reduced investor confidence in China and Chinese firms. However, it also had a positive outcome in prompting Chinese enterprises to better regulate themselves, as well as compelling the Chinese government to increase supervision.

A long-term mechanism needed

As the frenzy for overseas listing reemerges, the Chinese enterprises hoping to be listed abroad are paying more attention to their investor relations management, and have tightened scrutiny of their agencies and lawyers. Today Chinese firms are more likely to be transparent, abide by international rules, and are building on their emergency and crisis response capacity.

At the government level, Chinese authorities have acted to maintain the image and interests of Chinese businesses as well as those of the country at large. They use multiple channels to clarify situations and avoid media spin as much as possible. Different coping strategies are deployed in light of the specific situations of Chinese firms, to prevent individual scandals from growing into a conspiracy to sabotage the Chinese economy.

Naturally, to preclude another confidence crisis, the country must establish and improve its public relations mechanism for economic affairs and crisis management.

First, while encouraging companies to participate in economic globalization, the Chinese government should account for overseas listing into its economic planning, improve bilateral/multilateral cooperation mechanisms, and provide professional services for Chinese companies in the fields of overseas listing and investment. Relevant authorities and agencies could provide firms with standard trainings on investment policies and laws in target foreign countries, preparing them to do business overseas and helping them formulate strategic plans.

Second, China should step up its efforts to improve the domestic capital market, so that more local companies would choose to be listed at home. For example, the country can provide them more financing channels by enhancing its multi-level capital market system. Meanwhile, supervisory bodies should improve rules and institutions share trading, internal control of securities companies, delisting and restitution for investors, among others. Any company that is caught cheating must be brought to justice.

Third, China should help its enterprises improve their abilities to thrive and survivee in international capital markets. The country should set up a sound corporate credit system in line with international practices and conforming to domestic conditions and market rules. In this way Chinese enterprises will become acquainted with foreign capital markets, develop greater awareness of public relations, hone their ability to communicate effectively and learn to protect themselves through legal means in foreign markets.

Xiang Anbo is an associate research fellow with the Enterprise Research Institute under the Development Research Center of the State Council.

(Source: China Today)