Saturday, March 14, 2009

First Chinese company listing on the New York Stock Exchange and the Sarbanes-Oxley Act of 2002

by M. Ulric Killion

First, the following two articles provide factual details of this historical event, or the circumstances surrounding the listing of China Green Agriculture, Inc., on both the NYSE, New York Stock Exchange, and the NYSE Eronext Markets. Secondly, and more importantly, the significance of the successful listings of this company bears relation to other societal issues, such as issues relating to policy, and issues relating to legal and economic reforms.

I. NEW YORK, March 9-- China Green Agriculture Inc., the first Chinese company listed on the new New York Stock Exchange Amex market, opened for trading on Monday. Green Agriculture, which produces and distributes humic acid based liquid compound fertilizer, is also the first Chinese company to list on NYSE Euronext markets in 2009.  

"Today is an exciting milestone in the company's continued growth," said Tao Li, chief executive officer of China Green Agriculture. "Since becoming a public company last year, we have devoted a great deal of resources to improving our corporate governance and level of oversight in order to meet the requirements of a more senior exchange," he added. 

So far, NYSE Euronext has 66 companies listed from Greater China, including 56 companies from mainland China listed on the NYSE Euronext, 5 from Hong Kong on NYSE Euronext Markets, and 5 Taiwanese companies on NYSE Euronext Markets. The total global market capitalization of NYSE Euronext-listed companies from the mainland China is 1.1 trillion U.S. dollars, and 1.2 trillion for all companies from Greater China. 

II. Then there is the article  titled, “China Green Agriculture Celebrates First Day of Trading on NYSE Amex First Company to List on NYSE Amex market”. The article addresses two historical events:

-- First Company to List on NYSE Amex market 

-- First Chinese Company to List on NYSE Euronext Markets in 2009

NEW YORK, March 9, 2009 – Xi’an, China-based China Green Agriculture, Inc. today opened for trading under the ticker symbol “CGA”.  China Green Agriculture, Inc. is the first company from Mainland China to list on the new NYSE Amex market since NYSE Euronext’s acquisition of the former American Stock Exchange, and the first Chinese company to list on NYSE Euronext markets in 2009.

“We are pleased to welcome China Green Agriculture, Inc., a pioneer in agricultural products, as the first company to list on NYSE Euronext markets in 2009,” said Michael Yang, Chief Representative of Beijing Office, NYSE Euronext. “NYSE Euronext’s acquisition of the former Amex enables us to extend our coverage to smaller, promising companies.  We look forward to partnering with China Green Agriculture on NYSE Amex, the premier U.S. equities market for listing and trading small- and mid-cap growth companies.”

“Today is an exciting milestone in China Green Agriculture, Inc.’s continued growth,” said Mr. Tao Li, Chairman, President and Chief Executive Officer of China Green Agriculture.  “Since becoming a public company last year, we have devoted a great deal of resources to improving our corporate governance and level of oversight in order to meet the requirements of a more senior exchange.”  Ying Yang, Chief Financial Officer of China Green Agriculture, added: “As NYSE Amex is tailor-made for small- and mid-cap enterprises, we strongly believe that will encourage a larger, more diverse group of investors and analysts to follow our company and will provide us the platform to expand our footprint in the US and worldwide as well as the means to continue our growth strategy in the long-run.”

About China Green Agriculture, Inc. (NYSE Amex: CGA) 

China Green Agriculture, Inc. produces and distributes humic acid (“HA”) based liquid compound fertilizer through its wholly owned subsidiary, Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd., (“TechTeam”). TechTeam produces and sells approximately 15,000 metric tons of over 100 different kinds of fertilizer products per year. 

All of TechTeam's fertilizer products are certified by the PRC government as green products and suitable for growing Grade AA "green" foods, also known as green products that contain little or no chemical materials, as stated by the China Green Food Research Center. TechTeam's fertilizers are highly concentrated liquids which require an application of approximately 120 ml per mu per application. Its average end user has approximately four mu of land (one mu = .165 acres). 

China Green Agriculture currently markets its fertilizer products to private wholesalers and retailers of agricultural farm products in 27 provinces in the PRC. The leading five provinces by revenue for the three months ended December 31, 2008 are Shannxi (21.6%), Shandong (7.1%), Xinjiang (5.0%), Fujian (5.0%) and Guangdong (4.7%). For more information, visit http://www.cgagri.com. 

NYSE Euronext-listed Chinese Companies (1.31.09): 

  • NYSE Euronext has 66 companies listed from Greater China. This includes 56 companies from Mainland China listed on the NYSE Euronext, 5 from Hong Kong on NYSE Euronext Markets, and 5 Taiwanese companies on NYSE Euronext Markets. The recently acquired NYSE Amex lists 10 companies from China.
  • The People’s Republic of China is one of the largest sources of listed companies from the Asia-Pacific region. The 66 companies from Greater China represent 51% of the more than 100 NYSE-listed companies from the Asia-Pacific region. Additionally, there are 6 companies from Greater China listed on the Free Market in Europe operated by NYSE Euronext.
  • The total global market capitalization of NYSE Euronext-listed companies from the Mainland China is $1.1 trillion, and $1.2 trillion for all companies from Greater China.  In 2007, the NYSE listed 20 companies from Greater China, including 18 IPOs.   In 2008, NYSE Euronext listed 7 companies from China, including 4 in Europe, when NYSE  Alternext market welcomed its first 4 Chinese companies.

III. The Policy and Reform implications of the listings.

In terms of China, an earlier IMF study observed the difficulty of operating in an environment of institutional deficiencies, which includes a weak legal framework, poor governance, and economic data of dubious quality. A January 2006 article (Shenzhen Daily) reads, “Economists agreed that China had the wind in its sails.”

However, as early as 2003, Li Deshui, the commissioner of the National Bureau of Statistics (NBS, guojia tongjiju), acknowledged for the first time that China’s economic estimates were flawed, and its research methods “did not always reflect the real situation.” These flawed economic estimates and research methods necessitated that after about twenty years the NBS had to switch from the Soviet accounting system, rather than standard international practices of readjusting quarterly and annual GDP growth estimates, to Western accounting standards.

Most experts and authorities recognize that foreign investment, mostly foreign direct investment (FDI), has underwritten much of China’s economic growth. A growing proportion of foreign funds, admittedly, were accumulated via the debt and equity offerings of Chinese firms in international capital markets and, though too lesser extent, in China’s weak domestic capital markets. 

As of 2008, there were not any Chinese firms listed on the New York Stock Exchange. This because, generally, the most cited reason was a reluctance to meet the requirements of the Sarbanes-Oxley Act of 2002.  

More particularly, this is “the requirement that the CEO and the CFO certify the company’s annual and quarterly reports.” The successful listings of the first Chinese company, which is  China Green Agriculture, Inc., on both the NYSE and NYSE Euronext, arguably, demonstrate both the success of on-going legal and economic reforms in Mainland China, and the earlier failings of the Soviet accounting system, and why it was necessary to switch from a Soviet accounting system to western accounting standards and practices.

Sources:
First Chinese company listed on NYSE Amex market, March 10, 2009, Xinhua.
Romina Boarini, Asa Johansson, and Marco Mira d’Ercole, Alternative Measures of Well-Being, OECD Social, Employment and Migration Working Papers No. 33 DELSA/ELSA/WD/SEM(2006)2, February 17, 2006.
Xu Dashan, Revised GDP for 2004 up by 16.8%, October 21, 2005, China Daily.
Economy roars into New Year, January 26, 20006, Shenzhen Daily.
Thomas G. Rawski, Economic Issues and the Future of China, (University of Pittsburgh, 2003).
Jiang Zhuqing and Li Wengfang, Revision raises 2004 GDP for Beijing and Guangdong, December 22, 2006, China Daily.
Allen T. Cheng, Economic figures were flawed, top official says, November 21, 2003, South China Morning Post. 
Carsten A. Holz, OECD — China Governance Project The Institutional Arrangements for the Production of Statistics, OECD Statistics Working Paper STD/DOC(2005) 1, 5-7 (January 19, 2005).   
Sarbanes-Oxley Act of 2002, (Public Company Accounting Reforms and Investor Protection Acts), Pub. L. No. 107-204, 116 Stat. 745.

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2009.

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