Ping An's Money-Grab Farce and the Ecological Balance of the Capital Market

Author: [Site Administrator]
Source: [Fund Analysis]
Article type: Regular article
Published: 2008-2-22 19:16:36
Column: Expert Perspectives

The reason the Ping An money-grab incident is a farce is that it possesses all the characteristics of one. A lion-mouthed secondary offering in the 160-billion-yuan range is like a nouveau riche suddenly barging into a Beijing zhajiangmian noodle shop, yelling that he must have shark fin and abalone, and threatening to make a scene otherwise. One of this farce's greatest achievements is that the incident will certainly make the list of 2008's Top 10 Capital Market Events. Of course, as a bonus, it also became the last straw that made the market definitively bid farewell to 5000 points.

That such a massive fund-raising push came so urgently before the Spring Festival probably has only two reasonable explanations: First, Ping An's overseas investments have suffered large-scale losses — possibly of the Blackstone type like CIC's or the futures type like China Aviation Oil's — and therefore massive capital is needed to fill this hole. Second, since Ping An is deeply involved in secondary market trading, pushing out such a massive fund-raising plan, even if ultimately not approved, can crash the market and achieve its secondary market strategic objectives. If approved, it gets a free windfall of massive capital — a win-win either way.

Companies like Ping An, which hold pivotal positions in the capital market, should, beyond their own economic pursuits, voluntarily shoulder appropriate market responsibilities. But such expectations are a bit too lofty for domestic mega-corporations at their current level. So let's look at this from another angle.

Given the current level of Chinese financial institutions, companies like Ping An would have less than a 1% chance of survival without the Chinese capital market. Just look at the complete annihilation of those QDIIs to see the actual level of these normally pampered mega-institutions. The most ideal scenario, then, is to continue being tough at home — that is, keep the meat rotting in our own pot. But there's a prerequisite: the meat can rot, but the pot cannot. If the pot is broken, nobody eats.

Therefore, institutions like Ping An, if they had any macro-thinking, should understand that maintaining the ecological balance and sustainable development of China's capital market would ultimately benefit themselves the most. Otherwise, if everyone throws caution to the wind — if Ping An can grab 160 billion, why can't ICBC, BOC, China Life, Sinopec, PetroChina, Baosteel and others all come for 200, 300, or 500 billion? This vicious cycle would ultimately leave everyone without water to drink or rice to eat.

Since domestic mega-institutions are still at an infant level, regulatory oversight becomes extremely important. Rules that should not need to be created must now be created — for example, limiting the size of each secondary offering, mandating minimum intervals between offerings, and so on — in order to maintain the capital market's ecological balance.

Environmental protection and ecological balance are already global issues, and the capital market similarly faces environmental protection and ecological balance challenges. The various forces active in the capital market coexist within one system precisely because there is a basic coordinating relationship among them. Once this relationship is broken, the capital market's larger system will face an ecological crisis. And once an ecological crisis occurs, restoring the capital market's vitality is not an overnight matter.

For China's nascent capital market, its ecosystem is inherently extremely fragile. Therefore, maintaining its ecological balance requires some human guidance, and this guidance will gradually diminish as the system matures. For administrators, consciously protecting the capital market's ecosystem is currently their most important task. Because for administrators, their performance depends entirely on whether the capital market system operates smoothly. Any decision that leads to an ecological disaster for the capital market cannot possibly be considered passing grade.

Maintaining the ecological balance of the capital market is time-sensitive, and some decisions are therefore time-sensitive. For example, under current conditions, a major force in the capital market engaging in excessive resource extraction through aggressive fund-raising is absolutely untimely. Once it spreads, it will inevitably cause severe ecological disaster.

An important aspect of environmental protection is the reasonable, moderate development of the capital market's market resources, prohibiting reckless exploitation. Even less can it permit the rampant behavior of unlicensed small coal mines or coal bosses who illegally mine under the protection of local or other powerful interests. These resources belong to all the Chinese people — no one has the right to waste them or engage in impropriety for personal gain.

In truth, the principles of the world are all quite simple, and capital market matters are also simple. What is not simple is interest. With interests at stake, everything simple becomes complicated. The problems encountered in real-world environmental protection are like this, and capital market problems are the same. Therefore, to ultimately solve the problem, the hidden hand of interests must be severed — that is probably the true key to the matter.

At the time of writing, the market staged yet another money-grab farce with Shanghai Pudong Development Bank's massive secondary offering. This proves that the bad example set by Ping An is indeed infinitely powerful. Even if we can charitably assume that some of this fund-raising is genuinely necessary, the ultimate result may be that even the truly necessary fund-raising activities are spurned by the market as Ping An-type grabs. Isn't it perfectly clear who is truly being harmed here?