Hongkong's criminalisation of commerce just protects cronies (SCMP April 9) 

 

Hongkong values are sometimes truly upside down. The season of the Rugby Sevens tournament saw several people hauled before magistrates for the "crime" of attempting to re-sell tickets to the event. In a city which purports to believe in the market, a perfectly reasonable business activity is made into a crime.

For what reason? It is hard to say exactly, but perhaps it is to protect those who themselves control the ticket system for what is supposed to be a tourist attraction as well as a public, international sporting event. OK, the Sevens has organisers, sponsors and patrons as well as a paying public, and they have legitimate interests to defend. But what good, I ask, can come of stopping those who want a last minute ticket from paying whatever is the going secondary market price for an event which is sold out?

Ticket "touting" is a useful business involving a significant degree of risk. The ticket entrepreneurs must invest without knowing in advance whether he will be able to re-sell them at all, let alone at a profit. No "buy and hold" in this business. Some events are of course assured of a sell-out, but not the Sevens -- this was the first time since 1997 when tickets were all sold before the event began. The criminalising of legitimate commerce is particularly outrageous in the age of on-line auctions and web sites offering last minute purchases of almost anything. Last minute buyers can get amazingly cheap deals, or pay through the nose for something - say, a Grand Slam tennis final - they desperately want. That's the market.

Legal sanctions should only exist to prevent market cornering or manipulation. How can one individual with, let us say, 7 rugby tickets for resale - 0.1% of the total in issue - be said to be either manipulating the market or exploiting a monopoly?. If there is a problem it is with the process of allocation of the vast majority of tickets.As with laws against parallel importing - buying from sources other than local dealer monopolies -- the scandal here is not touting but the motives of officials who support such restrictive practices.

Criminalisation of fair trade in consumer goods, be they tickets or teletubbies, contrasts with the government's backing for major cartels - the small group of developers who dominate the land market, provide lucrative retirement jobs for civil servants and wield massive influence on housing policy. How come they are allowed to hoard land, to cooperate in anti-competitive deals, etc. while small-time touts with no market power are prosecuted? Instead how about some action against share touting encouraged by rule waivers provided by a monopoly run by a former civil servant - the Stock Exchange?

Of course buyers themselves must always beware of the share touts posing as investment bankers and analysts. They must protect themselves because no one will do it for them. Exchange chief executive K.C. Kwong gives the impression that his big salary is a just reward for doing the bidding of the big boys rather than protecting minority investor interests or enforcing new issue rules.

Ask the Li family. Li Ka-shing's clan may have much egg on it face thanks to misleading statements about Richard Li's accomplishments, and the 90% fall of the PCCW share price from a peak of $26 to $2.6. Sure, they have lost a lot of paper wealth as well as reputation. But remember how much they and their associates made as a result of the pumping up of the PCCW and Tom.com share prices? Those who get in on the ground floor of share spirals always make money, however steep the ultimate fall.

There is neither time nor space to examine all the family related dealings in either company. I do not pretend to know the bottom line. However, it is a matter of record that in May 1999 1.1 billion shares in PCCW were placed in May 1999 at just HK$0.31 each. Just eight months later supposedly well advised institutions were buying further placements at HK$23.50 and the self serving investment "analysts" amplified the company's hype about Network of World, "rolling out broadband across Asia"! with totally fictitious value projections.

These investment banks used the techniques of Dr Goebbels and should now have his credibility.. Those ludicrous prices could not of course hold but they stayed in the stratosphere long enough for some to cash out.Richard Li's private company was able to cash out of HK$3.6 bn dollars worth at HK$15 a share meanwhile deputy chairman Francis Yuen was making a handy 500% profit by exercising share options granted not long previously, and then stocking up on a new lot of options. Another option beneficiary was Alex Arena who made the profitable move from government telecoms adviser to Richard Li's telecoms front man.

The story at Tom.com, which received various waivers from the supposed rules, was even worse for the majority of public investors who jumped in when they saw that Cheung Kong and Hutchison were already players. The public was suckered into buying astonishingly priced shares in an almost empty shell at prices multifold those paid a few weeks before by the insiders, who probably included, through offshore accounts, executives of various "prestigious" investment houses. Given all this - and a slew of similar GEM episodes - it is hard to imagine that Hongkong has much to teach mainland regulators. Indeed, Zhu Rongji may be wondering why the Beijing corruption scandal which claimed Chen Xitong did not also deal with the behavior of some patriotic investors from elsewhere. ends

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