Chinese corporate governance

The debacle at Shanghai Electric Group provokes an uneasy sense of déjà vu. Three of the Hong Kong-listed company's executives, including one ranked among China's top 100 richest men, have been detained for "personal acts". Alas, the official probe in China's wealthiest city means those personal acts could yet end up ensnaring investors.

Shanghai Electric dismisses these concerns. The track record of investigations at other Hong-Kong listed companies with mainland assets does not inspire confidence. Euro-Asia, an orchid grower, was among the first batch of Hong-Kong listed Chinese companies to head into liquidation after the founder's arrest. Last year saw the demise of Moulin Global Eyecare. Together, the two companies wiped out some $1.3bn of market capitalisation. More recently, a China-based executive at Ocean Grand Holdings disappeared after the aluminium products maker defaulted on debt..

Investors face several problems. Misdemeanours may or may not be financial. Yang Bin, the flamboyant entrepreneur behind Euro-Asia was arrested for "financial crimes". That could have meant the alleged window-dressing of accounts but may equally have referred to Beijing's displeasure at his appointment to run a free-trade zone on the North Korean border.

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