Sunday, May 20, 2007

Is the Chinese government playing fast and loose with its own rules?

The FT this morning reports that the Shanghai government agency responsible for clearing drains and repairing lifts in apartment buildings has emerged as a leading shareholder in at least three listed companies, in spite of being barred from such investments. The Shanghai Municipal Housing Maintenance Fund Management – appears on lists of the top 10 shareholders of companies in the aerospace, electronics and energy sectors traded on the Shenzhen stock exchange. The three holdings are together worth about Rmb788m ($100m).

The revelation, says the FT, will add to concerns that different parts of the government have invested heavily in shares – often illegally – during the recent boom in the mainland market and could be exposed to losses if there were a crash.

Well, that's fine as a concern for those watching the markets with a nervous eye to a possible crash.

Most observers will be concerned about something rather different: how are these illegal investments by Communist Party-controlled entities rigging the rules to make Communist Party members even richer than they would otherwise be? Is it the case that the drive against corruption only applies to those who fall out with the Communist Party?

Most dictatorships eventually come unstuck because of this kind of practice of creating a set of rules or laws but then allowing the high and mighty to benefit from breaking exactly those rules. Sphere: Related Content

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