Wednesday, December 5, 2007

An attack on free speech in China

It is the goal of my blog to provide financial opinions strongly supported by factual evidence, however controversial or opinionated my articles may be.

I can only do this in a democratic society that supports free speech. I believe that free speech is one of the most fundamental rights that we have.

So it was very disappointing to recently to read an article on the WorldHealth Care blog that discussed the closure of the China Development Brief, a newsletter reporting NGO issues, by the Chinese government authorities. Furthermore, Nick Young the author of this newsletter has been banned from re-entering the country.

According to the Australian publication "The Age", Nick Young reported that a senior official had told him "You can be the Government of China's friend or our enemy; there is no other way."

China appears focused on only presenting the State of their Country in a positive way to the outside world. Of course many countries even "democratic" ones have & will attempt to engage in media manipulation, but the closure of an independent media news is an extreme form of censorship which no citizen no matter what their political beliefs are should accept or tolerate.

In talking about his goal with the China Development Brief, Nick Young recently wrote...

"I have always argued that it is important to get coherent, informed and independent Chinese voices into international debates about China—rather than those debates being dominated by Western voices that are often ill-informed and unsympathetic to the real difficulties of governing this huge and complicated country—and I hoped that China Development Brief could come to offer the world at large “the best in Chinese thinking on social development, in plain English.”

China's Government needs to realise that free speech promotes openness and transparency. It is also key to China's own economic development. Given that most of China's largest companies are majority owned by the Chinese Government it does create concern in my view that this same organisation and majority shareholder is supporting the censorship of independent news services in China.

Lets us hope that this manipulation of the media is not also extending into the corporate arena and that reported financials produced by large Chinese corporates is accurate and complete and is not being presented in a way to support a positive view of China's corporate health by the global investment community.

Ratefinancials is a highly respected New York-based forensic research firm. Recently they issued a report (September 2007) entitled 'Government Controlled Entities Masquerading as Independent Public Companies’ which was critical of the ten largest NYSE-listed Chinese companies by market capitalization. They received “Poor,” or “Very Poor,” ratings for their accounting, quality of earnings, and governance.

Victor Germack, the founder and president of RateFinancials was quoted as saying

"Investing in publicly traded Chinese companies at the end of the day is a crapshoot that requires blind and unfounded faith that the PRC will ultimately put the best interests ofshareholders ahead of political and other considerations,” said Victor Germack, founder andpresident of RateFinancials. “These companies are government-controlled enterprises masquerading as independent public companies and it is virtually impossible to adequately assess their financial condition given their poor level of disclosures. Given the inherent risks of these companies, it’s both surprising and disappointing that they are allowed to trade on the NYSE.”

The fast pace of economic growth that China is experiencing potentially offers exciting opportunities for investors I genuinely believe that. There are Chinese companies with wonderful businesses. But there needs to be good corporate governance. In most countries, political bodies that majority own public companies tend to let politics interfere with decisions about the business.

Given, the censorship tendencies shown by the Chinese government it is in investors interests for the Chinese Government to sell its majority ownership in these various Chinese public companies as soon as possible. It is also imperative that the Chinese Authorities embrace the notions of transparency and openness in all aspects of government as this is critical to China's future and economic development.

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