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By Root 1252 0

and so stabilize and lift shares. At the same time, he also founded and controlled several trust-finance institutions and was active in banks, securities, financial leasing, insurance, and funds; through these various legal and illegal methods, he was in fiduciary control of other people’s money. Operating in “grey areas,” which the laws had not yet addressed with any specificity, and using irregular practices that were definitely illegal, he was able to transform his enterprise into a frightening and dangerous financial monster. The costs of operating his enterprises amounted to RMB 1 billion every year, spent on maintaining and manipulating share prices. In addition, interest charges on the financing of share purchases required another RMB 3 billion. In other words, yearly capital worth RMB 4 billion was necessary to guarantee normal operations. The sum was high enough to guarantee that the operations of this zhuang-jia would eventually come tumbling down.

The importance of a responsible media in developing a healthy stock market cannot be over-emphasized. The magazine Caijing, based in Beijing, has done more than any other form of media in China to assure the necessary transparency. In October 2000, Caijing published a cover story about “the murky screen behind which funds operate”; this story debunked one nice myth about the stock markets. Before this, fund companies were considered trustworthy, unlike the avaricious zhuang-jias. They relied on professional management and scientific approaches. Since 1998, every

Looking from Shanghai’s Bund across the Huangpu River to Lujiazui in Pudong. To some extent, the highrises of Pudong represent the elevated status of China. Photographed in February 2008.

group of funds that came to market carried the support of regulatory officials and the public at large. These funds were viewed as importing Western experience, assimilating the experience of mature markets. They were important in the development of institutional investors. In the end, however, people discovered that funds were not the angels they were meant to be. Like zhuang-jias, they employed irregular practices, including illegal manipulative behavior. The Caijing article stirred up quite a few waves.

Fund companies were indignant at the charges. Just as the rebuttals were coming thick and fast, a seventy-year-old economist named Wu Jinglian stood forth to address the subject in a television interview. He agreed with those who compared the markets to gambling dens, but went further to say, “Some foreigners say that the Chinese stock market is like a gambling den, highly irregular in its operations. But gambling dens have their rules. For example, you are not allowed to see other people’s cards. In our stock

A youngster playing volleyball in front of some old buildings in Shanghai. Pudong’s Oriental Pearl Tower, built in 2004, can be seen in the background.

Swimmers at the Huangpu River.

markets, privileged people are allowed to see other people’s cards. They can commit frauds with impunity, and they can engage in deceit and trickery. They can and do manipulate share prices.” After delivering an attack on both zhuangjias and funds, Wu Jing-lian turned to the larger issue of the purpose and “positioning” of China’s capital markets. He said, “We cannot turn the stock market into a place for rent-seeking. Authorities have positioned the stock market as a financing service for state-owned enterprises. They have skewed the market by turning it into a tool for obtaining funds on behalf of these enterprises. Any company that is granted the right to be listed on the market is able to derive its working capital out of excessively high-priced share distributions. This has turned the entire stock market into a huge rent-seeking place for the state-owned enterprises. The money comes from the hands of those who buy the shares, not from normal business operations. We must reject a policy that allows this and reject a way of doing things that says, ‘the government leaves it up to the market, and enterprises rake in the money.