LI, Tao @ Hong Kong

Almost two weeks have passed since Zijin Mining Group Co, China’s largest gold producer, was caught delaying (for up to nine days) the disclosure of information that could sway its share price. Despite the blatant breach of listing rules, the Hong Kong Exchanges and Clearing Ltd (HKEx) has yet to issue a comment.

The “HKEx could issue a private reprimand, a public statement involving criticism, or even suspend or cancel a listing if our Listing Committee finds that there has been a breach of listing rules, but we do not usually comment on any individual company,” a staff member from the HKEx corporate communication department, who asked not to be identified, told China Daily in a telephone interview last Wednesday.

On July 13 Zijin Mining’s share price plunged as much as 12 percent (to its lowest recorded in more than one year), after the Group announced that a toxic chemical leak at its Fujian plant had poisoned thousands of fish and contaminated a reservoir.

Mainland authorities have since arrested three executives overseeing the plant. The China Securities Regulatory Commission has reportedly begun to investigate the copper producer for possibly violating disclosure rules.

“But it is always difficult for Hong Kong regulators to investigate the misconduct of mainland-based listing companies,” said Joseph Fan, Chairman of the Department of Finance at the Chinese University of Hong Kong.

“As Hong Kong is confined by jurisdiction, the city’s regulators will have to wait for the findings by the mainland authorities before they make a decision,” Fan added.

The Hong Kong government has been trying to implement reforms in the local stock market to reinforce disclosure regulations, particularly since the occurrence of corporate scandals. It has also tried to do so on account of the fact that the HKEx has little authority to handle those found guilty of violating regulations.

In the public consultation that took place in March, the government proposed to give the SFC more power to apprehend companies who fail to immediately disclose price-sensitive information. It also proposed heavier penalties, including fines of up to HK$8 million, for those who violate regulations. However, it weakened the consultation when it did not address a proposal to make non-disclosure violations a criminal act. The government’s reluctance to address the proposal was supposedly influenced by the business sector.

“Since the matter is still in consultation, a company’s failure to disclose information does not yet fall under our jurisdiction. Currently we only examine possible fictitious disclosure in the stock market,” an SFC spokesman said when asked to comment on the Zijin case.

Some have criticized the March consultation as overly compromising. Its critics compare it with previous consultations, such as one that took place in 2003, in which some suggested a maximum 10-year prison term and a fine of HK$10 million for those found guilty of violations.

Fan believes that, in practice, it is not so easy to lay a severe criminal charge on those found guilty of non-disclosure. This is evident from the consultations of 2003 and 2004, all of which encountered firm opposition from the business sector.

“Hong Kong’s economy, although it is traditionally flexible, it is in fact rooted in syndicated business groups. The government might have to cede to listing companies on such matters, given that their interests are interrelated,” said Fan.

Secretary for Financial Services and the Treasury Chan Ka-keung, said earlier that the new proposals agree with practices observed in the European Union and Britain, which impose civil penalties on only those who fail to disclose price-sensitive information.

Chan also rejected allegations that the government has given in to pressure from business groups.

China Daily

(HK Edition 07/27/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-07/27/content_11051619.htm