UPDATE 1-Morgan Stanley's Wei says China IPO regulators should protect investors

Wed Sep 12, 2012 1:02am EDT

* Wei says regulators' paternalistic approach on IPO regulation should change

* Comments come as Beijing is trying to raise standards of China's markets

By Melanie Lee

TIANJIN, China, Sept 12 (Reuters) - Chinese regulators should do more to protect investors and not just focus on a company's business model when vetting initial public offerings, the co-chief executive of Morgan Stanley's Asia operations said on Wednesday.

The comments from Wei Sun Christianson, one of the top investment bankers in the region and the longtime head of Morgan Stanley's China business, come at a time when Beijing is trying to put in better safeguards to raise the standards of its capital markets system.

Still, those efforts face steady resistance from a system that has for many years favoured the politically connected. China's IPO selection process, done by politicians and not capital market experts, is what some critics say allowed many companies to go public that were not ready, or worse, had faulty accounting in place.

In 2011, a batch of Chinese companies that went public in both Greater China and abroad saw their shares plunge, with dozens delisted, after accounting scandals emerged at the companies.

"One of the things that needs to be focused on is, instead of looking at the profitability -- the business model of the company -- they should focus more on things like protection of the interests of the investors," said Wei, speaking on a panel at the World Economic Forum.

Morgan Stanley co-founded Chinese investment bank CICC in 1995 and in 2006 obtained a wholly-owned commercial banking license. The Wall Street bank later sold its stake in CICC and in June 2011 launched a securities joint venture with Chinese brokerage Huaxin.

Most major stock exchanges approve IPOs through a listing committee comprising financial market experts and professionals, to determine that the company is ready to be publicly traded, and that shareholders will be protected when the shares start trading.

In China, IPOs tend to be approved in batches, in a process that prior to this year, was lacking in transparency, and was criticized for being political in its execution.

MOVING AHEAD ON REFORMS

The Chinese authorities are keen to create a more professional image for their stock markets, in line with their ambition to make Shanghai a global financial hub by 2020 to rival New York and London.

They are pushing ahead with reforms, including steps to internationalise the yuan, which they hope will one day rival the dollar as an international reserve currency.

In nearly a year as China's top securities watchdog, Guo Shuqing has let loose a flurry of reforms targeting insider trading, market manipulation and dodgy disclosure that have hamstrung China's stock markets even as its economy has grown.

But China's more than 72 million retail investors, who account for about three-fourths of trading on the domestic stock exchanges and have been burned repeatedly in the weak and volatile markets of recent years, remain sceptical.

"The IPO process is pretty unique in the roles played by the regulator," Wei said on the panel. "Even now, I think the regulators continue to play a paternalistic kind of role in supervising and regulating the market. I think it's time the regulators started thinking about change."

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