25 October 2016
Yim Fung's disappearance would be less remarkable in mainland China. Photo: Bloomberg
Yim Fung's disappearance would be less remarkable in mainland China. Photo: Bloomberg

Mystery of missing broker shows China risk infecting Hong Kong

A month after the head of a Hong Kong brokerage vanished, his whereabouts remain a mystery.

Those who suspect that Yim Fung, the chairman and chief executive officer of Guotai Junan International Holdings Ltd. (01788.HK), was taken in by authorities to assist them with an investigation in mainland China include Christopher Cheung Wah-fung, who represents the finance industry in Hong Kong’s Legislative Council.

Cheung had been scheduled to attend a dinner with Yim the day he was reported missing, Bloomberg reported Friday.

But no one knows for sure what happened to Yim.

Guotai Junan International said late last month it had lost contact with Yim.

That occurred amid probes sweeping through China’s finance industry that involve at least 16 people, including securities executives, a fund manager and regulators.

The company’s shares plunged 12 percent on Nov. 23, the day the firm said it hadn’t been able to reach Yim for five days. Guotai Junan International has declined to comment further.

The case underscores a challenge for Hong Kong: how does the city maintain its reputation for transparency and rule of law — key credentials for any global financial center — if executives can simply disappear without explanation?

Yim may be being questioned in connection with his former boss, Yao Gang, Cheung told the news agency in an interview.

Yao, a vice chairman at the China Securities Regulatory Commission who formerly supervised initial public offerings, is under investigation for “alleged serious disciplinary violations”, the Communist Party’s Central Commission for Discipline Inspection said Nov. 13.

Yim and Yao worked together at Guotai Junan Securities Co., the state-owned firm that is now the mainland’s second-biggest brokerage by market value and which owns the Hong Kong-listed unit.

Yao was general manager from 1999 to 2002 before returning to roles at the CSRC. 

“When people are taken into custody or house arrest, there’s very little transparency over that in the mainland,” said David Webb, a shareholder activist who is a deputy chairman of the city’s takeovers panel.

“The rule of law and disclosure is underdeveloped in China. Having an underdeveloped rule of law is a problem — markets and investment depend on the rule of law.”

Guotai Junan International’s slide after Yim’s disappearance was mirrored at Hong Kong-listed Fosun International Ltd. after a Chinese magazine reported that the firm’s billionaire chairman, Guo Guangchang, had gone missing.

Fosun International shares plunged 9 percent in heavy trading Monday, even as Guo returned to work.

The surprise that rippled through Hong Kong’s securities industry with Yim’s disappearance was amplified by his reputation as a cautious, conservative, successful businessman and his prominence in the city, including as a former chairman of the Chinese Securities Association of Hong Kong.

“I’ve known Yim Fung for more than 10 years. As a friend and industry peer, I was shocked to know that he’s missing,” said Ronald Wan, chief executive at Partners Capital International Ltd. in Hong Kong.

“It’s natural for people to associate the events with China’s crackdown.”

Born in mainland China, Yim is in his 50s and is a permanent resident of Hong Kong, where he has lived for more than a decade.

“China has its own way of investigating, but they should understand that Guotai Junan is registered in Hong Kong,” Cheung said.

“Transparency is important to Hong Kong-listed companies.”

Guotai Junan International listed on the Hong Kong stock exchange in 2010, the first mainland-owned brokerage to do so.

Mainland-domiciled companies traded on Hong Kong’s stock exchange now number 540, more than 10 times the number in the year 2000, Bloomberg data shows.

That means investors in Hong Kong, which is rated highly for judicial independence, are increasingly exposed to decisions made in China.

“The transparency of mainland companies is absolutely a lot less than those in Hong Kong,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology.

“The risks from investing in mainland companies are definitely higher.”

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