December 6, 2004

BAD MONEY AFTER BAD:

Jet fuel scandal deals China a body blow: The multi-million dollar scandal that has rocked Singapore-listed jet fuel import monopoly China Aviation Oil is not just another case of incompetence. It raises serious questions about the corporate governance of Chinese firms and deals a blow to Chinese stocks - just when the world is becoming interested in them. Singapore's authorities, too, have some answering to do. (Kosuke Takahashi, 12/07/04, Asia Times)

[M]any wonder why the SGX and the Monetary Authority of Singapore (MAS), the city state's central bank, had not noticed the whopping losses earlier. This could amount to a blatant deception hurting investors. "Someone in the Singapore government was sleeping," said an oil trader. "Losses of this magnitude suggest the SGX and MAS failed to enforce corporate governance. The entire SGX trading system and the MAS's supervisory role need to be examined."

Many traders have pointed out that allowing CAO chief executive officer Chen Jiulin to fly back to China last Wednesday was a bad decision. Chen has been suspended from duty at CAO since the firm sought court protection from creditors. CAO, however, promised Singaporean authorities on Monday that Chen will would return to Singapore some time this week. "Mr Chen returned to China on November 30 to attend to family matters. On December 1, 2004, the company requested Mr Chen to return to Singapore to assist in the investigations. Mr Chen has informed the company that he will return to Singapore sometime this week," CAO said in a brief statement to the Singapore Exchange.

So will CAO face charges of falsifying financial statements submitted to the authorities in Singapore? Will it also face charges of insider trading? In time, both the Chinese and the Singaporean governments have to sort out these issues if they wish to restore investor confidence, something that seems to be in pretty bad shape right now.


Don't sweat it--investment in China has never been based on reality.

Posted by Orrin Judd at December 6, 2004 8:37 AM
Comments

I wonder what the Chinese thnk of George Soros?

The funny part about this 'scandal' is that if they could have held off the wolves another week, their $550 million loss probably would have been erased.

Posted by: jim hamlen at December 6, 2004 9:05 AM

Another example of why 'transparency' matters. You would have thought the Singaporeans, who are very sharp people, would have seen what happened to Thailand in the 90s and would have learned.

Anyone who buys Chinese stock should have his head examined.

Posted by: Bart at December 6, 2004 9:57 AM

Of course we don't have corporate scandals here.

Posted by: Robert Duquette at December 6, 2004 10:37 AM

Enron and Reliant were scary but if some people go to jail, the system works. Arthur Andersen should have had all its partners decertified.

Posted by: Bart at December 6, 2004 2:42 PM
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