Corporate Disclosure by Listed Companies in The
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Corporate Disclosure by Listed Companies in the People’s Republic of China and Australia: Seeking an Appropriate Pathway for the Regulation of the Chinese Securities Market By Jian Fu This thesis is submitted to the University of New South Wales in fulfilment of the requirements for Doctor of Philosophy August 2005 ii CERTIFICATE OF ORIGINALITY This thesis represents my own work, except where acknowledgement is made to other authors and it contains no material which has previously been submitted for a degree at the University of New South Wales or at any other institution. __________________________ Signature of Candidate iii Corporate Disclosure by Listed Companies in the People’s Republic of China and Australia: Seeking an Appropriate Pathway for the Regulation of the Chinese Securities Market ABSTRACT With the rapid growth in the development of economic reform in the People’s Republic of China since the late 1970s, China’s legal system has also been undergoing major reform and development. This has seen the emergence of a major effort to draw upon the law reform experiences of other countries, especially in the area of economic law reform. As the securities industry is a key component of an increasingly corporatised market economy, it has been necessary to adopt an effective body of securities laws. Disclosure is the fundamental issue of securities laws as it exists in market transactions and the conduct of market participants. As such, the development of an appropriate body of disclosure law and practice is vital to the integrity of securities law and ultimately to the market economy. It is for this reason that this dissertation looks at the development of China’s securities market and corporate disclosure laws, and identifies the forces that have led to its current form and content. This dissertation argues that China’s legal system must be seen as a product of China’s distinctive history and local circumstances. It analyses the current nature of China’s corporate disclosure laws and notes that China’s law reformers have relied heavily upon the US model which may not necessarily suit China. Based upon a number of theoretical understandings of the transplantation and development of law, this dissertation argues that China’s approach to law reform in this area has not always produced a body of law that is appropriate to China’s particular circumstances. It suggests that valuable insights can be gained from a comparison of the methods of corporate disclosure law reform that were followed in Australia. The Australian experience is relevant to China as Australian lawyers and regulators have played an important role in fashioning securities regulation in Hong Kong and as Hong Kong has sometimes been seen as providing useful models for China itself. Signature of Candidate iv Acknowledgements This thesis could not have been completed without the kindness and generosity of a number of persons, and to each of them I express my sincere appreciation. I am greatly indebted to my primary supervisor, Mr Angus Corbett, of the University of New South Wales, for his very helpful guidance, constructive comments and kind encouragement. I also thank my secondary supervisor, Professor Paul Redmond, of the University of New South Wales, for his direction and assistance at the early stage of my PhD studies. Special thanks are also owed to Professor Roman Tomasic; among all sorts of help from him, I am extremely grateful for his generosity in giving me access to his private law library which has extensive collection of Australian and Chinese law materials, and his criticism and comments. I am grateful to the University of New South Wales for providing a scholarship to fund my study. I would also like to thank my former colleagues in China for providing relevant research resources. Thanks are also due to my interviewees for taking time to share their knowledge and experiences with me. Special thanks also go to Ms Alice Vaillant, as a native English speaker, for her proofreading. Last but not least, I would like to thank my family for their endurance while this thesis was being written. In particular, I thank my parents for their love and spiritual support from far distance. My lovely children deserve a big thank-you as they served as a source of energy for me whilst writing this thesis. v TABLE OF CONTENTS Abstract iii Acknowledgements iv CHAPTER ONE: INTRODUCTION 1 1.1 The Background 1.2 The Significance of This Dissertation 1.3 The Hypotheses of this Dissertation 1.4 The Outline of this Dissertation 1.5 Methodology 1.6 Cut off Date CHAPTER TWO: AN INTRODUCTION TO THE CHINESE LEGAL SYSTEM: SETTING THE CONTEXT FOR SECURITIES LAW REFORM 20 2.1 Introduction 2.2. The Importance to Review the Chinese Legal History 2.2.1 A Brief Review of the Legal History of the People’s Republic of China 2.3 Sources of Law in the PRC and Their Importance 2.3.1 Introduction 2.3.2 Forms of Legal Sources in the PRC 2.4 Law-making Bodies in the PRC 2.5 Law-making Process in the PRC 2.5.1 Law-making Process of the NPC 2.5.2 Law-making Process of the Standing Committee of the NPC vi 2.5.3 The Process for Making Administrative Regulations by the State Council 2.5.4 The Making of Local Regulations by Local People’s Congresses 2.5.5 The Making of Departmental Administrative Rules by the Ministries and Commissions of the State Council and the Making of Local Administrative Rules by the Provincial Governments 2.6 Enforcement of Law in the PRC 2.6.1 The Enactment of the Company Law 1993 and the Securities Law 1998 as well as Relevant Administrative Regulations and Administrative Rules 2.6.2 How Did the PRC Start Regulating the Securities Market? 2.6.3 How Were the Company Law and the Securities Law Enacted? 2.7 Conclusion CHAPTER THREE: GATEKEEPERS IN THE CHINESE SECURITIES MARKET 80 3.1 Introduction 3.1.1 Re-emergence of Share Issue and Regulation 3.1.2 The Corporate Disclosure Rules 3.2 The Regulator in the Chinese Securities Market – the CSRC 3.2.1 Regulation by other Bodies of the Central Government before 1998 3.2.2 Trying to Centralise Securities Regulation 3.2.3 The Functions of the SCSC and the CSRC 3.2.4 The Rules of the CSRC 3.2.5 Overview 3.3 The Regulators in the Chinese Securities Market – other Departments under the State Council 3.3.1 Regulation by the PBOC 3.3.2 Other Departments of the State Council 3.4.1 Regulation by Local Governments before the CSRC was Established 3.4.2 The Role of Local Governments after 1998 3.5 Other Regulatory Bodies – the Stock Exchanges 3.5.1 Why the Shanghai and the Shenzhen Stock Exchanges Were Established 3.5.2 The Shanghai Stock Exchange vii 3.5.3 The Shenzhen Stock Exchange 3.5.4 Overview 3.6 Self-regulatory Organisations 3.6.1 Securities Industry Associations 3.6.2 Other SROs 3.7 Conclusion CHAPTER FOUR: REGULATORY RULES DEALING WITH DISCLOSURE IN THE PRC SECURITIES MARKET 143 4.1 Introduction 4.1.1 What Is the Concept of Securities Used in this Dissertation 4.1.2 Company’s Duty of Disclosure v Director’s Duty of Disclosure 4.1.3 Where Can We Find the Disclosure Rules 4.1.4 Overview 4.2 Major Rules Dealing with Disclosure in Fundraising 4.2.1 Disclosure in IPO 4.2.1.1 Sources of Rules on IPO 4.2.1.2 IPO and Offering of other Shares 4.2.1.3 Verification System v Examination and Approval System for Public Offer of Shares 4.2.1.4 Procedures for IPO 4.2.1.5 Application Documents for IPO 4.2.1.6 Prospectus 4.2.1.7 Procedures for B share Issue 4.2.1.8 Overview 4.3 Major Issues on Disclosure 4.4 The Formation of Disclosure Rules and their Functions 4.5 Overview of the Corporate Disclosure Regime in the PRC 4.6 Conclusion viii CHAPTER FIVE: THE STATE OF THE SECURITIES MARKET AND DISCLOSURE IN THE PRC 200 5.1 The Development of the Securities Market 5.1.1 Re-emergence of the Securities Market in the PRC 5.1.2 The History of the Securities Market in China before 1949 5.1.3 The Securities Market after the Funding of the PRC 5.1.4 The Securities Market since the 1980s 5.2 Listed Securities 5.2.1 A Shares and B Shares in the Domestic Markets 5.2.2 Four Types of Shares in Shareholding Companies Converted from SOEs 5.2.3 Bonds 5.2.4 Funds 5.3 Opening of the OPRC Securities Market after its WTO Accession 5.3.1 Means for Share Issue 5.3.2 Formation and Abolition of the Quota System for Share Issue. 5.3.3 From an Examination and Approval System to a Verification System 5.3.4 Main Board and High-tech Board (Secondary Board) 5.4 Investors in the Securities Market 5.5 Securities Companies 5.6 Classic Cases Involving Disclosure in the PRC Securities Market 5.6.1 The Baoyan Incident 5.6.2 The Case of the Beihai Zhengda Compay’s Takeover of the Susanshan Shares 5.6.3 The Qiongminyuan Case of False Financial Report 5.6.4 The Chengdu Hingguang Case of Profits Forgery and Fraudulent Listing 5.6.5 The Yinguangxia Fraud Case 5.6.6 The Hainan Kaili Compmany v the CSRC 5.6.7 Overview 5.7 Exchange and Co-operation with other Securities Regulatory Bodies in Other Countries 5.7.1 IOSCO 5.7.2 IASC 5.7.3 Raising Capital from Abroad ix 5.8 Overview 5.9 Information Availability, Mechanism for Enforcing Securities Regulations, and Remedy for Investors Who Suffer Loss 5.9.1 Information Availability 5.9.2 Information Availability under the Law and in Practice 5.9.3 Bodies Involving Enforcement of Securities Regulations 5.9.4 The Powers of the CSRC Dealing with Cases Involving Contravention of Disclosure Provisions 5.9.5 The Remedies Available to the Investors Who Suffered Loss 5.9.6 Conclusion CHAPTER SIX: KEY ELEMENTS OF THE AUSTALIAN CORPORATE DISCLOSUE REGULATORY