ECONOMIC DEVELOPMENT IN CHINA & EAST ASIA: LESSONS FOR INDIA Leslie Young Professor of Finance Executive Director, Asia Pacific Institute of Business The Chinese University of Hong Kong. Macro Comparisons. Geopolitics. Geography and Political Norms. Spiritual Framework.
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ECONOMIC DEVELOPMENT IN CHINA & EAST ASIA: LESSONS FOR INDIALeslie YoungProfessor of FinanceExecutive Director, Asia Pacific Institute of BusinessThe Chinese University of Hong Kong
About one-third of the shares are owned by the State, by individuals (A Shares) and by legal persons. Employee and foreign (B share) ownership is insignificant.
Corporate performance improves with:
Professor of Finance and Executive Director,
The Asia Pacific Institute of Business
The Chinese University of Hong Kong
Core companies: about 3% of equity held by other core companies
Kinyokai: about 30% of equity held by core and other kinyokai
Group companies: over 50% of equity held by keiretsu members
To take control need to attend 50 shareholders’ meetings. At each meeting, argue that you have control because you control all outside shares plus each of the other 49 companies. Why?
Because you control each of their outside shares plus each of the other companies. Why?
Because you control…. etc.
This argument is difficult to press home at any one meeting since it depends on winning the arguments at all the other meetings, which depend on winning the arguments at all the other meetings…..
What if all shareholder meetings are held on the same day?
What if shareholder meetings are held on different days?
… at each meeting hear the sound of one hand clapping….
Ownership of company C = 50% * 10% = 5%
Control of company C = Min(50%;10%) = 10%
Ownership/Control = 5%/10% = 0.5
B is tightly affiliated to group controlled by A (i.e., at the 20% level)
C is loosely affiliated to group controlled by A (i.e., at the 10% but not at the 20% level)
Example of expropriation:
C buys asset from A overpriced by $10,000
Gain by A = $ 10,000 * (1-Ownership of C)
In the smaller East Asian economies, private ownership of assets and stock markets have been long established: the structure of ownership and control permits the controlling family to exploit minority shareholders who have already contributed capital.
By contrast, the structure of company groups in China appears designed to exploit opportunities to expropriate the state during the transition to private ownership.
Since China’s companies have high state ownership, the controlling family does not need a pyramid to control a substantial portion of the shares available to the public.
Family company F buys D’s shares at a low price. D then invests in Companies A, B and C which are about to receive valuable state assets. When these investments are announced, D’s stock market price increases, benefiting the controlling family via its holdings through F.