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Appetite exists for more extractive industry transparency on Shanghai exchange - report

Source: Thomson Reuters Foundation - Fri, 18 Jan 2013 15:30 GMT
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LONDON (TrustLaw) – There is widespread international support for the Shanghai Stock Exchange to implement transparency regulations for the extractive industry although Chinese industry insiders worry new rules could impact the competitiveness of local companies, according to a report released this week.

The report by SynTao, a Chinese consultancy, and Global Witness, an international anti-graft watchdog, cited a survey carried out by SynTao of 24 Chinese and international extractive industry experts.

Nearly half of the international experts surveyed for the report said that they would like to see the Shanghai Stock Exchange mandate financial disclosure regulation and none of the experts were explicitly against it, said the report, entitled 'Transparency Matters'.

Meanwhile, six out of seven Chinese respondents said that increased payment reporting would improve corporate and government transparency.

Anti-corruption campaigners said the report boded well for business in China.

“More transparency would bring mutual benefits for companies, investors, and the local population in resource-rich countries and in China,” Gavin Hayman, director at Global Witness, said in a statement.

“We’re seeing Chinese respondents in particular recognise the long-term value for companies that come from improving the transparency of their corporate governance and social responsibility practices,” Hayman added.

However, the report also revealed some concerns within China about the impact of transparency laws. Chinese respondents expressed reservations about whether the Shanghai Stock Exchange should mandate that companies disclose payments made to governments, saying they were concerned new disclosure rules would reduce the competitiveness of Chinese companies, the report said.

They argued that Chinese resource extraction companies with international operations would be at a disadvantage when bidding for projects against companies not subject to transparency regulations as they may have to disclose sensitive information.

They also questioned the feasibility of requiring Chinese companies to disclose payments to foreign governments and whether that information would be reliable, the report added.

Anti-corruption campaigners are pushing for extractive companies to disclose the payments they make to governments in the countries where they operate. The campaigners say that greater transparency can reduce the likelihood of corruption and potentially decrease the ‘resource curse’ – a term used to describe the phenomenon by which countries rich in natural resources are often poorer than those without them.

The Shanghai Stock Exchange leads all other Asian exchanges in terms of extractive industry market value and a change in disclosure regulations on the exchange would have a significant impact in improving extractive company transparency worldwide, the report said.

The United States passed legislation in 2010 that will force all oil, gas and mining companies listed on a U.S. stock exchange to disclose on an annual basis payments made to foreign governments. The European Parliament is currently debating whether to pass even tougher legislation that would include non-listed companies and those in the forestry sector as well.

The Hong Kong Stock Exchange also requires extractive companies to disclose payments to foreign governments but only on a one-off basis when the company is first listed.

The report urges the Shanghai Stock Exchange to follow “international best practice standards” and mandate that extractive companies on the exchange report annually on the payments that they make to governments on a country and project level.

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