The arrest of the chief executive of China Aviation Oil (中國航油), listed in Singapore, will push foreign investors to take a closer look at future Chinese share sales, analysts say.
It has once again drawn attention to the problem China has with getting modern corporate governance right, and could even motivate some investors to demand a discount when buying their shares, they argue.
"It won't fundamentally diminish the appetite of institutional investors. It doesn't change the China story," said Jamie Allen, secretary general of Asian Corporate Governance Association, a regional nonprofit organization.
"What it will do -- I hope -- is affect the way institutional investors scrutinize the companies," he said.
China Aviation Oil chief executive Chen Jiulin (陳久霖) was arrested on Wednesday -- and later released on bail -- after returning to Singapore amid investigations of losses amounting to US$550 million.
Allegations of insider trading have also been raised after China Aviation Oil's parent company cut its stake in the firm in October, 10 days after it allegedly became aware of the impending financial disaster.
It is bad news for Chinese companies eager to tap into global finance through a series of high-profile initial public offerings (IPOs).
"This issue will cause overseas investors to worry about local enterprises' ability to govern themselves," said Yu Zhiqiang, an analyst with Shenzhen New Land Investment Consulting Co. "It will affect their interest in Chinese IPOs."
Previous IPOs have regularly seen frenzied interest, culminating when China Green Holdings (中國綠色食品), a vegetable producer, sold shares in Hong Kong in January that were 1,600 times oversubscribed.
Then along comes the alleged wrongdoing of China Aviation Oil -- not some upstart led by amateurs but a bluechip that, until recently at least, had an ambition to become the country's largest integrated overseas oil company.
If one of China's most admired companies can come under suspicion of shady dealings, then what about the country's smaller and less prestigious companies, some observers have started wondering.
"The fact that such an outstanding company can end up in this kind of trouble means a lot of investors will look with less confidence at other Chinese enterprises," a futures trader told the Oriental Morning Post in Shanghai.
Market jitters would come at a bad time not just for large enterprises planning IPOs overseas, but for the government too, as it hopes to push economic reform through share sales in overseas markets.
Bank of China (中國銀行), the country's largest forex lender, is preparing what could become the mother of all Chinese IPOs next year, as is China Construction Bank (中國建設銀行), the country's third-largest lender.
"The China Aviation Oil issue is just an individual incident," said Zheng Weigang, Shanghai Securities Co (上海證券). "It doesn't mean all companies listing on securities markets are unable to prevent risk or manage themselves properly."
After all, some analysts reason, China has experienced similar sorts of embarrassment in the past, and they have soon been forgotten.
Bank of China knows what it is like to be under scrutiny for irregularities. Its former president is now behind bars, serving a 12-year prison sentence for taking huge bribes.
"China has been able to digest this sort of bad news in the past, and I believe that over time, we'll be able to digest this incident as well," said an analyst at a Chinese securities firm, who asked not to be named.
Some Chinese enterprises are gradually taking real steps towards better corporate governance, and not just to appear in a better light for foreign investors.
"They want to be taken seriously. They want to be attractive to foreign investors," Allen said.
"And some have realized that there is really something to corporate governance, and that it's not just icing on the cake. It helps you run your business and reduce risk," he said.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
MAJOR BENEFICIARY: The company benefits from TSMC’s advanced packaging scarcity, given robust demand for Nvidia AI chips, analysts said ASE Technology Holding Co (ASE, 日月光投控), the world’s biggest chip packaging and testing service provider, yesterday said it is raising its equipment capital expenditure budget by 10 percent this year to expand leading-edge and advanced packing and testing capacity amid strong artificial intelligence (AI) and high-performance computing chip demand. This is on top of the 40 to 50 percent annual increase in its capital spending budget to more than the US$1.7 billion to announced in February. About half of the equipment capital expenditure would be spent on leading-edge and advanced packaging and testing technology, the company said. ASE is considered by analysts