Riches to rags story shows need for business reforms in China

October 1, 2013 Leave a comment

Riches to rags story shows need for business reforms in China

Staff Reporter

2013-10-01

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Liu Chunxi lost his fortune after being beaten out by corrupt competitors. (Internet photo)

Liu Chunxi, originally a billionaire in he city of Xinmi in central China’s Henan province, has now become a vendor selling all kinds of local products after he spent 216 million yuan (US$35 million) over the past years in a failed bid to build a cigarette plant in the province, says Chinese Entrepreneur magazine. The magazine found that 10 enterprises with a history of bribery and which were unqualified for the project, were miraculously successful in their bids. Liu’s story reflects the harsh realities of doing business in China: the fate of many private enterprises relies on the government and state-owned enterprises which monopolize the market.Recent corruption cases involving China Mobile and PetroChina show that once a private enterprise establishes good ties with top officials at state monopolies, they may benefit from lucrative contracts that make them very wealthy. A lack of ties on the other hand can turn a billionaire into a street vendor.

Administrative monopolies can also do damage to the owners of private firms that is just as severe. Government officials hold lots of screening and approval powers that can make or break a private company’s plans, thus entrepreneurs have no option but to seek to curry favor, creating a culture in which bribery is rampant.

If Beijing is serious about its latest anti-graft campaign, it needs to establish a new type of relationship between government and business.

Four things should be done:

First, the government must strengthen its efforts at decentralization, restricting intervention and ensuring a free and fair market.

Second, the government should accelerate reforms at state-owned enterprises, eliminating their monopolies over domestic resources and markets and strengthening supervision of their management.

Third, private enterprises must observe the law, using honest means (better services, better quality, newer and better technology) to win orders from the government and state-run enterprises.

Fourth, private enterprises should not reply too much on the government but must be competitive in their own right.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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