After Facebook’s botched initial public offering (IPO) last month—in which an alleged technical glitch delayed trading causing hundreds of millions in losses to investors—much of the cry in the U.S. media was about how the interests of small time investors were trampled on. In China, though, the financial press is in on the action, and either takes payoffs to keep quiet about potential fraud, or extorts companies for millions of yuan in exchange for favorable coverage. The retail investor is at the bottom of the food chain.
The perils posed—and rents extracted—by an unfree press could not be illustrated more vividly than in the financial sector in China. Billions are siphoned off companies every year while they prepare for their IPOs, according to an investigation by Chinese finance magazine Caixin.
In a five-part article based on interviews with regulators, journalists, PR reps, and company executives, Caixin documents the rampant blackmail and hush money.
Companies are informally required to buy advertising space in the four state-run financial newspapers, or risk being attacked. “If you pay only two of them, the other two will write negative reports,” an equities agent said to Caixin. “Moreover, the amount paid for the advertisements must be the same, or there will be trouble.”
Other media companies may simply threaten that “Unless your company buys an ad, my publication will release sordid details about your company that trashes your fund-raiser,” according to Caixin.
There are also subtle gradations, depending on how much a company is prepared to cough up. “Not appearing on the front page has a cost, not appearing in the finance section, not appearing in the stock column, not appearing in the ticker—there are costs for each level,” a deputy executive told Caixin.
There are also professional middle-men—the people at public relations firms—that know the ropes and guide companies on whose palms to grease, and how much to pay. Usually PR firms get paid to place ads in various media—but in this case they buy or bury coverage.
One company manager said they gave the PR agency 200,000 yuan (US$31,000) for “protection.” The manager said: “I have no clue whether the money was indeed given to the media’s editorial department or how it was distributed … There is no proof or receipt. The PR agency told us this is how things work in the business.”
Another company doled out three million yuan (US$471,000) in just the first round of pay offs. And sometimes firms, having bought off one newspaper, then get hit by another.
About 70 percent of all companies with plans to list on Shenzhen stock exchange’s ChiNext growth board are targeted, a general manager at a PR firm told Caixin.
“Every ChiNext-listed enterprise has spent an average of 6 million yuan on this,” a regulator told the magazine.
One PR source said: “It’s an open secret … Some people may have broken laws. But no one is investigating.”
The response from readers on the Caixin website was visceral. “Terrible,” one wrote. Another simply: “If even the media is degenerate, what hope has the society?”
In the article, Caixin did not outline its own policies for dealing with companies willing to buy coverage before their IPO. The magazine also did not report on company payoffs to regulators. Caixin is published in China, and there are certain lines that even reform-minded media dare not cross.
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