Shanghai, the once famed Paris of the East, has lured many a foreigner to its river banks, its promised gateway to the potential billion plus consumers in China. The skyline is rapidly rising to meet its more developed financial center rivals, giving the city an air of affluence and modernity at first glance.
Foreign interest in China has arguably never been more at a fever pitch than now with the country’s unrivaled economic growth and its long awaited invitation to play with the big boys in the major league, the WTO. Faded Shanghai is being polished and spruced to seduce multinational corporations and investors to buy into the Chinese Eldorado. But the performance is a little too polished, a little too manufactured – just like Pudong, Shanghai’s new financial district – as if masking the lack of substance with form.
The success of China’s Shenzhen and Shanghai stock markets has always been debatable. An opaque regulatory system makes it difficult to ratify official figures on listed companies and the investor constituency, not to mention the quality of assets. Yet demand outstrips supply, ensuring that Chinese companies, good or bad, enjoy some success in raising capital. But everyone knows it isn’t going to last without drastic reform, which poses a formidable challenge for China’s stock market watchdog, the CSRC.
The challenge is not just in setting the groundwork of transparency and corporate governance, which the CSRC has already taken to with the zeal of a born-again, and laudably so. The challenge is in implementing the new corporate governance and disclosure codes, and, more importantly, changing corporate culture so the rules are accepted. Patriarchal Confucian ethics are deeply infused here, and a minority shareholder questioning the word of an elderly chairman would be tantamount to speaking back to your own father – tut tut.
There is one Chinese market that’s absolutely booming, one whose opacity works for the best: the black market. Look at the new and gleaming but empty malls compared to the bustle of Xiang Yang street market, where a pirate Lord of the Rings DVD sets you back around $2. You can erect new buildings and rules, dole out lofty titles and responsibilities, but it’s difficult to change people’s substance. Even Sir Nicholas Montagu, chairman of the UK’s Inland Revenue, was recently sighted on a stroll around the tax-free no-man’s-land of Xiang Yang. Ahh, the lure of fake Prada!
