Paper: An Analysis of the Investors in Taiwan and the Lack of Transparency and Rampant Market Manipulation

That means more choice--and better choices--as China floats private companies that are likely to prove to be the workhorses of China's economy in the future. Domestic stock exchanges--Shanghai in particular--will likely exceed Hong Kong in importance as this process unfolds. Don't expect a wave of foreign buying right away. Accounting standards and transparency are still big problems. And not all institutional investors can invest yet; only those with $10 billion of assets under management can play. Foreign individuals are still shut out. “It is likely that the opening of the market to institutions will ramp up only very slowly, as was the case in Taiwan," says Peter Kurz, a veteran Taiwan watcher and president of Taipei-based investment consultancy Insight Pacific. China's introduction of a “Qualified Institutional Investor" system also follows another rule change in November that signals the government's intention to open up the market to overseas money and deal with some existing problems. Foreign investors will be allowed to buy A-class shares in publicly traded companies directly from their government owners. Among foreign investors, trading restrictions abound: The shares can't be traded on the open market, for instance. But transactions should eventually come about. Government agencies throughout China are looking for cash for such things as pensions and infrastructure. Selling stock will help. Many of the same agencies know that they will also be threatened by foreign companies when liberalization under the WTO kicks in. Raising cash by selling equity can help preserve jobs and obtain fresh talent. Further down the road, the changes will have merger and acquisition implications. Buyers will see opportunities. “Foreign companies strong in Industry X will see this as a chance to buy a company in same industry in China," says Eugene Cha, a Beijing lawyer who works with overseas business in that city....