Vanke case calls for transparent rules

A man walks out of a China Vanke development in Tianjin. [Photo/China Daily]

The recent plunge in China's real estate giant Vanke should come as no surprise. The inherent instability of Vanke became clear late last year when its major competitor, privately-owned Baoneng Group, acquired enough shares to become its largest shareholder.

Daggers have been well and truly drawn between Vanke and Baoneng after the former announced a major asset-restructuring plan with Shenzhen Metro Group. If the restructuring goes through, Baoneng will no longer remain Vanke's major shareholder. No wonder the already rocky relationship between Vanke and Baoneng has now descended into an open and internecine warfare.

Baoneng considers it acceptable to call publicly for the removal of the entire Vanke senior management. It has been less than complimentary toward its archrival on many previous occasions, too.

But while these apparently unhelpful, petulant and public comments could easily be dismissed as just that, they highlight the root cause of this most unwanted and public spat, which is the lack of maturity in the senior management of many of China's top companies and a share-trading system that lies exposed when such rivalries boil over.

The Chinese mainland doesn't seem ready for the sort of open trading system and set of rules that characterize Western models. In the corporate rivalry case, it appears that Baoneng's move to become Vanke's largest shareholder had little to do with shrewd, strategic and financial management. Instead, the motivation appears to be the stabilizing of a major competitor. In the West, the United Kingdom in particular, such an aggressive and hostile acquisition of shares would almost certainly have been referred to the authorities and quite possibly judged anti-competitive and prevented from taking place.

Chinese authorities should learn from the Vanke-Baoneng case and take measures to prevent such ugly scenarios. And an updated and transparent set of rules and regulations is needed to guide the share-trading activities of major competitors.

For some guidance the Chinese regulatory authorities could look to the UK's recently formed Competition and Markets Authority, which takes full responsibility for any possible anti-competitive practices such as price fixing, bid rigging and share trading.

Major competitors across the mainland should retain as much freedom to trade in shares as possible but should be prevented from acquiring major shareholding stakes in archrivals.

Also, better corporate governance should be encouraged and, where necessary, a regulatory body should have sufficient powers to intervene in any escalating dispute. Simply suspending all share trading will not help.

Many of China's largest companies are spearheaded by prominent leaders with an even more prominent ego. This seems to playing a big role in this internecine share-trading warfare. So greater devolution of strategic management responsibility is the way forward.

The author is a visiting professor at the University of International Business and Economics in Beijing and a senior lecturer at Southampton University.