One of the interesting aspects of China’s boom is the incredibly poor performance of its stock market ( via WSJ). One case may speak for many, Topsoft:

One case that shows how well-connected companies can lead investors astray is Sichuan Topsoft Investment Co. Formerly a state-owned machine-tool company, Sichuan Topsoft got backing from provincial leaders who hoped to turn the southwestern province into a technology hub. In addition to developing software, the company touted the prospects of an industrial park for mobile-phone and laptop-computer production.

Investors piled in. Only later did they learn that Topsoft had guaranteed $210 million in loans to related companies. That was nearly twice Topsoft’s assets and violated a regulation that says loan guarantees can’t exceed 50% of a company’s assets. By the time regulators discovered this, Topsoft’s chairman, Song Ruhua, had sold his stake in Topsoft’s parent company to two senior executives for a total of 24 cents, and fled to the U.S., say Sichuan stock regulators. Mr. Song couldn’t be located for comment.

In a July 2004 statement, Sichuan Topsoft’s new leaders said they were conducting an investigation and promised: “Problems, once found, will be reported to investors in a timely fashion.” They haven’t announced any new developments since then.

A country simply can’t develop in a smooth trajectory with a banking system rife with bad loans and corruption, and equity markets with the same problems. We’re waiting for some discontinuities to develop.

This entry was posted on Thursday, April 21st, 2005 at 6:37 am and is filed under China, General, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.