Company traded in more than one market could have

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Unformatted text preview: dollars and issued in Hong Kong. Company traded in more than one market could have very different stock prices in each market. For example, the stock price of A share of Jiangling Motors is almost four times of that of B shares in early February 2001. The market fragmentation contributes to the price distortion and speculative tenor of the market. Fourth, the stock market is lack of adequate supervision and control. The Chinese stock market has serious problems such as inadequate disclosure of corporate information and existence of a host of illegal practices. Since the beginning of 2001, the CSRC has started to go after illegal activities and promote transparency. But it will take a long time for the CSRC to establish a sophisticated supervisory system and for the market to foster a culture of ethics. Given the fact that the capital market in China is not mature enough, it would be difficult for the AMCs to utilize the capital market to solve the NPL problem, either through IPOs of SOEs or through securitization of NPLs. The AMCs have been granted the right of listing sponsorship and bond/stock underwriting for companies within the scope of asset management. However, even if the AMCs could successfully list SOE in the stock market, it would be difficult for them to unload the shares because most of these shares would be state-owned shares which are not tradable in the stock market at present. In terms of securitization, unless the government cleans up all the legal obstacles and establishes a modern accounting system quickly, the securitization as an effective tool for dissolving NPL will not be realized soon. AMCs' Structural Problems - Competitions, Incentives and Skills The AMCs are temporary financial institutions with multiple roles to play during their ten-year duration. The inherent structural problem of the AMCs can significantly hamper their efficiency and effectiveness. First, competitions among AMCs could be destructive in the workout process. Each AMC has been established to take on NPLs from one parent bank. In many cases, a debtor defaulted to more than one bank and thus is liable to more than one AMC. Each AMC has the same goal in the work out process, that is, to maximize the recovery rate. Their strategies and means, however, could be very different, thereby bringing conflicts and causing delays in the work out process. Second, the AMCs are structured as SOEs with most employees transferred from the parent banks. Working for a SOB has been the most desirable profession in China's job market because of the high job security and excellent benefits. Being transferred from a bank to a company with only ten-year lifetime is equivalent to a pending unemployment for a lot of transferees. The unsecured job prospect could considerably dampen down the AMC employee incentive to divest the distressed assets quickly. Although some AMCs have developed incentive schemes to stimulate employees' efforts, it is unclear how these will be sufficient to overcome the proble...
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This document was uploaded on 03/12/2014.

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