Vol.2, No.06

The Shanghai Lawyer

Vol. 2 , No. 6 - June 10, 2003

Shanghai is one of the most dynamic and fastest growing mega-cities in the world. It is quickly establishing itself as the leading financial and economic center of the Far East, on par with the likes of Paris and New York. The Shanghai Lawyer is a bi-weekly publication providing up-to-date newsworthy articles and legal information to professional and business persons around the world. We hope you enjoy the newsletter and welcome your comments and feedback.

Letters from Shanghai

Things are pretty well back to normal in Shanghai after the SARS scare. This past weekend, people were out in hordes on the streets and traffic was back to its pre-SARS unbearable level once again. It seems that after being cooped up for the back couple of months, everyone was looking for an excuse to get out and do some shopping. A stroll down Hua hai Road o Sunday, Shanghai's equivalent to King's Road, was met with wall to wall people on the sidewalks. Tiny shoe stores along Shannxi South Road were crammed with buyers to the point of standing room only, as well as persons milling about the entrances making it difficult to pass. A stop at a Starbucks required rather good luck to secure a pair of cushioned seats (or any seats for that matter).

Still signs of the epidemic that almost brought the country to its knees, is still evident around the city. Servers in selected restaurants and clerks in some stores are still being required to wear masks. Many office buildings, including the Kerry Centre where LLX's offices are located, still require person without "Building ID" to register and undergo a temperature check before being allowed to enter. Any air travelers arriving in the city are still heavily scrutinized and likely to run a gauntlet of at least three or four temperature checks. I did notice however, that taxi drivers were officially given a reprieve this week from wearing masks and using the vehicle air conditioner.

In some ways I am almost sad to see the end of the scare. The streets were certainly a lot emptier with less persons on the sidewalks and cars on the roads. Persons and families spent a lot more time outside in parks playing badminton, practicing tai chi and just generally exercising more and getting fresh air. The streets and markets were cleaner than I have ever seen them due to the government doubling its efforts. Now it looks like we are back to the usual hustle and bustle of this huge city as it swings forward into another hot and steamy summer.

Shanghai Essentials

Eating Wild Animals Speculated as Cause of Cross-species Jump of SARS Virus

In the race for a SARS cure, scientists have made an interesting recent discovery: many rare wild animals including the civet cat, raccoon and badger, often considered delicacies by the southern Chinese often carry a corona virus quite similar to the one which causes SARS. The discovery has raised alarm about the cats around the country and trade of wild animals has been curtailed in Guangdong and Shanghai.

The link between the cats and deadly virus is not complete, but probability is high that people handling exotic edibles were among the first to experience SARS symptoms. Earlier this month in a large Shenzhen market, Researchers announced they found virus in captured civets, which live in many parts of Guangzhou and are commonly eaten by the province's denizens. Other wild fauna was found to contain similar SARS-like coronaviri.

Most interestingly, researchers found SARS antibodies in animal handlers who had been in contact with wild creatures, although none of the workers had been sick, according to World Health Organization officials reported the New York Times. Of 508 Guangdong food market workers, 13 percent were found to have antibodies to the SARS virus. The workers had been exposed to a milder form of the disease, which was the first step in the rise of the killer form. After it had jumped from animals to humans, a freak mutation likely kicked its virulence up a notch, beginning its march to fame and leading to the deaths of over 740 people worldwide over the past six months.

Investigators found that Shanghai has a total of 19 civets, located at farms in suburban areas of the city, all of which were quarantined on May 24 as investigation continues. However, the cats are not commonly eaten in Shanghai and are rather bred "just because", according to sources quoted by the Interfax News Agency.

Shanghai and Guangdong have banned the transport and trade of rare wildlife including the masked palm civet. Guangdong has also banned trade of monkeys, snakes and bats, hoping its strong stance will have some preventative power against future inter-species viral jumping. The southern province will also send teams from city to city to crack down on any further illicit wild animal trade. How long these strict anti-animal trade measures will continue is uncertain, and markets will not be stopped from selling less-exotic edibles including southern favorites like domesticated cats and dogs.

(Source: Friedlnet.com)

Shanghai Tycoon Investigated for Fraud

Chinese authorities have launched an investigation into the dealings of Shanghai's richest man, a property tycoon with close links to Liu Jinbao, the former head of the Bank of China in Hong Kong who was abruptly recalled from his post this month, legal sources and property executives said.

The investigation into Zhou Zhengyi, chairman of the Shanghai Nongkai Development Group and owner of two companies listed in Hong Kong, is understood to involve questionable loans, including one from the Bank of China (Hong Kong) for about HK$2.1bn (US$270m, €200m, ￡166m), made in early 2002. Mr. Liu, who first got to know Mr. Zhou when the former was chief of the Shanghai branch of the Bank of China from 1994 to 1997, was head of the bank's Hong Kong branch when the HK$2.1bn loan was extended. Mr. Zhou used that loan to acquire Shanghai Land Holdings, a listed company in Hong Kong. As security for the loan, he put up the 75 per cent stake in Shanghai Land he had bought with the money in the first place.

The extent of Mr. Liu's involvement in lending decisions to Mr. Zhou, who calls himself Chau Ching Ngai in filings to the Hong Kong stock exchange, was not clear. Officials at the Bank of China, the country's most prestigious state-owned bank, did not confirm or directly deny reports that Mr. Liu was also under investigation. Xiao Gang, president of the Bank of China, sidestepped questions this week over Mr. Liu's unexplained transfer to Beijing, saying only that such cross-border movements were "normal". The head of the Bank of China (Hong Kong) is one of the most powerful people in the former British colony.

Mr. Zhou, named by Forbes magazine as Shanghai's richest man last year, is one of the most flamboyant businessmen in China's commercial centre. He started out in the early 1980s as a noodle-shop owner but met success in the 1990s, during which time he owned a Ferrari and several Mercedes. Part of his path from rags to riches was derived through clever stock market speculation but later he moved into property. It was during this time that he forged links with Mr. Liu, who then headed the Bank of China in Shanghai. It was also at this time that he started to adopt a Hong Kong-style name, Alex Chou.

The Bank of China has been recovering from a series of scandals, one of which resulted in the arrest of Wang Xuebing, the bank's president. Another involved the theft of more than US$500m by employees from one of the bank's branches in the province of Guangdong.

(Source: Financial Times)

Did you know?

Shanghai A- Share Stock Market Opening to Foreign Investors

Investing houses UBS AG and Nomura Holdings Inc. received Chinese regulatory approval last Monday to buy Yuan denominated A-shares on the Shanghai and Shenzhen exchanges, announced the China Securities Regulatory Commission (CSRC). China's A-share market has a current capitalization of around US$ 500 billion.

The Qualified Foreign Institutional Investor (QFII) program will allow fund management companies with at least US$10 billion in assets to invest in China's A-share markets after approval. Investors are required to put at least US$50 million in a Chinese bank within three months of receiving approval.

Both newly accepted banks expressed positive outlook for China investment in the future. UBS directors noted that the bank would begin investment as soon as possible, after they have finished the required paperwork, although Nomura directors did not note when the firm would begin plunking down cash. After these two firms, a slew of big names are queued up for regulatory approval: Deutsche AG, Citigroup, HSBC, Goldman Sachs, and Morgan Stanley to name a few.

Later in the week, share prices in Shanghai and Shenzhen had remained level in response to the CSRC's announcement, a rather cool reaction to the new approval, noted Shanghai Daily. Both newly accepted firms Nomura and UBS are expected to cautiously and gradually increase investment in the markets, in spite of large demand for Chinese stocks abroad. Experts also predict that new investment houses will be approved at a slow and steady pace, avoiding any type of excitement that might stir the market to vigorously.

CSRC also announced that the QFII program's mainland counterpart will soon allow Mainland Chinese residents to invest in overseas listed Chinese companies through the Qualified Domestic Institutional Investor (QDII) program. China is expected to take this second big step toward liberalizing its markets and currency within the next few weeks, according to the South China Morning Post.

The opening of doors to foreign markets will release billions of foreign exchange reserves, approximated to be around US$150 billion for individuals with another US$316 billion in government coffers available for use abroad, according to experts. This move is expected to have the strongest effect in the Hong Kong market, with which investors are most familiar and many mainland companies are listed.

China's top banking and securities officials were reported to have met in high-level meetings on the QDII program and have finalized details of how it will be implemented, noted the SCMP.

Young Shanghainese Taking the Property Plunge

Shanghai's younger generation are entering the property market at an earlier stage of their life, empowered by confidence in their future, an uneasiness about the ever-increasing housing prices, and in many cases, with financial support from their parents. A survey conducted recently said young people between the ages of 26 and 30 had replaced those aged 31 to 35 as the second most active group of homebuyers in Shanghai.

The 26-30 crowd now accounts for 16.48 percent of total buyers in Shanghai, second only to those aged between 51 and 55. The growth of young consumers is primarily fueled by their increasing income and the confidence they hold for the future.

(Source: Shanghai Daily)

Lehman Lee & Xu

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