Hong Kong Now Wants Silence from Business Critics

On March 31, the Appeals Tribunal of the Hong Kong Securities and Futures Commission fined Moody’s Investor Services HK$11 million for what the tribunal claimed were inaccuracies in a 2011 report entitled “Red Flags for Emerging-Market Companies: A Focus on China.”

The assault on Moody’s is the latest indication that freedoms in Hong Kong are not only threatened by Beijing’s authoritarian and nationalistic pressures on the territory’s government and institutions. They come too with a parallel trend among those whose decisions reflect a bias towards silencing critics and opposing monopolistic practices which benefit entrenched interests. Nor is the SFC, which regulates a batch of financial agencies, alone. In recent days three other institutions have generated similar concerns, of which more later.

The Moody’s fine was reduced from the original SFC fine of HK$23 million. But it was still a shocking illustration of how far government appointees will go to silence criticism of mainland companies and those in Hong Kong on their voluminous payrolls.

The rating agency’s report looked at a large range of companies to identify situations which amounted to “Red Flag” warnings based on various statistical criteria. Details on 49 companies were given. Although this exercise involved a huge amount of data only a few mostly minor errors were identified.

The substance of the warnings was amply justified. As independent financial watchdog David Webb of www.webb-site.com has noted, five of the six companies singled out by Moody’s for the number of their Red Flags were listed in Hong Kong. Of those, four have been suspended from trading, having already lost between 55 percent and 98 percent of their value since the Moody’s report. The others have lost 38 percent and 10 percent respectively. Four have defaulted on their debts.

The bias against any negative comments, whether or not minutely accurate, is evident just from that result. The treatment of Moody’s, a company more often known for being too indulgent to companies than the reverse, is in sharp contrast to the constant failure of the SFC, despite its huge bureaucracy, to enforce listing requirements and its supposed corporate governance standards.

The composition of the tribunal says much about the way the system is biased towards allowing rip-offs of the public shareholders whom the SFC is supposed to protect. It consisted of a judge, Michael Hartmann, as chairman. He has spent his whole career in the featherbedded legal profession and is not known to have any particular expertise in financial market issues. A tame academic, SC Mak, who makes many appearances on government advisory bodies including the SFC itself, and Ding Chen who is also on various SFC advisory committees and panels are in the tribunal as well.

Ding herself might be thought more worthy of investigation given her record of publishing bull-market rubbish aimed at netting her own CSOP Asset Management some business. At the height of the China market frenzy last year, Ding was promoting an Exchange Traded Fund launched by her company as “not that expensive” when it was vastly overpriced by any normal market yardstick. It has, says Webb, now fallen 45 percent.

Clearly there is one law for licensed professionals who make money from such bull market nonsense and another for those who have nothing particular to gain from putting up red flags based on statistics and historical norms. For sure, Moody’s is a regulated financial institution so it has responsibilities to the public beyond those of non-licensed commentators. But Ding is also licensed.

Meanwhile the SFC is going after an unlicensed commentator who put out negative views on mainland property giant Evergrande Real Estate. A verdict on that case is awaited. Meanwhile honest analysts – journalists included – who express negative opinions and act on them are threatened. And Ding and the vast flock of sell-side analysts in investment banks and brokerages will continue to fleece the public.

The other agencies facing similar unsettling scenarios are the stock exchange and the EEC.

The government, which has a majority of board seats on the monopoly HK Exchanges, which has a monopoly on stock and futures trading is campaigning to shareholders not to elect fund manager Edward Chin as an independent member of the HKEx board. His crime was vocal support for the 2014 Occupy movement. The move in allegedly to bring in a commodity expert from London but HKEx is clearly an attempt silence critics wherever possible.

The idea that Hong Kong is a well-regulated market compared with the mainland will continue to be undermined so long as it acts like its mainland counterpart in turning a blind eye to accounts manipulation and mendacious stock boosterism and penalizes honest attempts to warn investors of dodgy looking data. The SFC is not just an expensive farce but represents an insidious introduction of efforts to stifle exposure of corporate sleaze. It is indeed part of a broader protection racket to defend entrenched and China-friendly interests at the expense of investors.

Nor is this just a problem of quasi-government entities acting to protect certain interests. The judiciary is sometimes no better. The Court of Appeals recently threw out a previous judgment in favor of an applicant for an available television channel. The judges ruled that it was the right of the government not the marketplace to determine market viability.

So much for Hong Kong as a competitive economy. But perhaps that was not a surprising outcome from a profession which, despite the evidence, truly believes it is wise and blind to self-interest and regards competition with distaste.

The falling standards of public administration are also illustrated by the Equal Opportunities Commission. Its former head York Chow was regarded as too activist by a government which only goes through the motions of equal opportunities in racial and gender issues. His contract was thus not renewed. In his place has come an undistinguished retired academic professor named Alfred Chan Cheung-ming. It has now come to light that while on a fat salary at Lingnan University he earned undeclared fees from tutoring a pro-government politician through a doctoral program at Tarlac State University in the Philippines.This was done through Lifelong College, an institution renowned for fixing up doctorates from lesser-known institutions to embellish the credentials of politicians and businessmen. Tarlac State ranks 43rd among Philippine universities and 11,824th in global ranking.