China's Securities Regulator to Establish Association for Listed Companies

Market, page 17, issue 465, April 19, 2010
Translated by Liu Peng
Original article: [Chinese]

China Securities Regulatory Commission (CSRC), China's top securities regulator, is preparing to establish an association of listed companies, various sources from the CSRC, listed companies and stock brokers revealed to the EO.

The EO learned that in the future, the independent directors of listed companies, who up until now, have largely been viewed as being simply for show and incapable of putting forward independent points of view, will in the future be nominated or appointed by an association instead of by the listed companies themselves. It's hoped that this will allow the independent director to exercise more independence in their judgment.

Yang Hua, head of the Division of Listing Company Supervision of the CSRC, told the EO that supervision of listed companies should comprise of both administrative measures and also market supervision or self-discipline - but China has been lacking in terms of establishing self-regulating markets.

The establishment of a national association for listed companies aims to fill this blank space that exists in the supervision system, Yang added.

Preparations

In March, Liu Yonghao, a member of Chinese People's Political Consultative Conference (CPPCC), revealed that the proposed national listed company association would convene its founding conference in the second half of 2010.

"The key step is to get the nod from Ministry of Civil Affairs," said Liu.

However, the Ministry of Civil Affairs told the EO that it has yet to receive an application for the establishment of such an association.

Yang Hua said the association's establishment still mainly involved coordinating with related central ministries and commissions.

The EO learned Yang Hua will be named secretary-general of the new association and that Chen Yaoxian, former chairman of the CSRC will be a strong candidate for chairman of the association.

In addition, Chen Qingtai, former director of the Development Research Center under the State Council, and Fan Fuchun, who recently retired as vice chairman of the CRSC, will be respectively named the association's executive chairman and executive vice chairman.

Yang Hua said,"Before the association's official establishment, it's a bit too early to reveal detailed personnel arrangements as they have yet to undergo formal discussion."

In fact, the CSRC has mulled over the establishment of such an association for over four years and also added it to the CSRC's list of priorities over the past two years.

The EO learned the main reason behind the delay in the establishment of the association lies in how to handle the relationship between the association with the regulators of listed state-owned enterprises including State-owned Assets Supervision and Administration Commission (SASAC), the Ministry of Finance and various levels of local government.

The senior managers, members of the board of directors and supervisors in these listed SOEs usually are appointed by the government agencies that oversee them and the CSRC doesn't really have the authority to supervise them.

In addition, the stock exchanges are responsible for training board secretaries and independent directors of listed companies while local branches of the CSRC are responsible for training the board members and supervisors. As a result, the association has to consult with the above-mentioned government bodies to take over some functions.

The Association's Role

Although the national listed company association has yet to be established, more than a dozen provinces have already set-up local listed company associations.

Take Guangdong for instance, its provincial listed company association has set up two committees. The cost of membership ranges from 10,000 yuan to 38,000 yuan. Zhejiang also has a provincial listed company association which has set up an independent committee of directors.

However, the management of these local associations is very loose and in some provinces, local associations and local securities associations are staffed by the same group of people.

An official from the local branch of the CSRC said many local listed company associations aren't able to exert much influence on the nature of self-regulation mechanisms that apply to listed companies.

The EO learned that the proposed association would set up two committees, led by a board secretary and independent directors and would consider introducing a professional qualification system for the positions.

"The key problem is to clearly define the association's function," said the head of a local branch of the CSRC, adding the association should be an independent self-regulating organization for listed companies.

He held that when it came to issues like information disclosure, credibility and social responsibility, supervision of listed companies should not be conducted by administrative orders but rather should be put under the auspices of the association.

A stock broker noted that given the association was sponsored by the top securities regulators and that the candidates for the association's leadership have close relationships with the regulatory body, the association would bear the stamp of bureaucracy.

The above chief of a local branch of the CSRC refuted that the association's workers must be familiar with the operation of listed companies; otherwise,self-discipline and supervision can't be coordinated with administrative supervision.

This article was edited by Paul Pennay