On Asia: China's different idea of capitalism

We should all be grateful to the European Union for adding to the sum of human knowledge on China. As revealed by the FT this week, Brussels has discovered that the People's Republic of China is not yet a market economy.

......By focusing on China's state intervention (a practice European governments know well) or poor corporate governance (presumably an ironic comment in the light of the Ahold and Parmalat scandals), the EU is missing the point.

For foreign investors, the most damaging aspect of China's still incomplete transformation from command economy to capitalist system is its companies' cavalier attitude to capital markets. To be merciful, I shall leave aside the inflated share prices, questionable trading practices and Russian roulette mentality of the domestic stock markets.

But even by looking only at the international arena, the shortcomings of Chinese corporates are obvious.

......Compare the behaviour of China Netcom, the country's second-biggest phone operator, with LG Philips LCD, the liquid crystal displays maker.

The Dutch-Korean group is pushing ahead with its IPO despite having to reduce its size by about 20 per cent because of difficult markets. But it has no choice: it needs funds to pay for planned investment of some $21bn over the next decade.

As for Netcom, more than six months ago the company let it be known it was preparing an IPO that could raise up to $3bn. The company appointed investment bankers but since the market took a turn for the worse, it has done precious little to prepare for its listing. The reason? It is owned by the state and does not need to raise cash.

Its management would no doubt like to add the letters PLC to their business cards but it has no real need to brave the market storm.

......Such a devil-may-care disposition to capital markets is not confined to state-owned companies. Minsheng Bank, a privately owned lender, has been toying with the idea of a $1bn Hong Kong listing for months.

And yet all fund managers have heard from this shining example of China's capitalism is how some employees had faked a shareholder meeting - an inauspicious start to life as a public company.........

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