In the news: Class action against PetroChina, ChinaWhys founders arrested and Shanghai free trade zone extended
September 05, 2013 | BY
clpstaff &clp articles &A class action has been filed against PetroChina as a result of a corruption scandal that was not disclosed. ChinaWhys founders have been arrested in Shanghai and there has been talk of the Shanghai Free Trade Zone occupying all of Pudong
PetroChina faces class action suit
Pomerantz Grossman Hufford Dahlstrom & Gross has filed a class action law suit against PetroChina and some of its executives for failing to disclose a corruption scandal. Several former executives of PetroChina and the oil company's state-owned parent, the China National Petroleum Company (CNPC) are under investigation by the central government for corruption. Pomerantz filed the lawsuit in the court of the Southern District of New York on behalf of investors who bought securities from PetroChina between April 26 2012 and April 27 2012. PetroChina is listed in Shanghai and Hong Kong and has American depository receipts traded in New York.
It appears the corruption crackdown by China's new administration has made it across the Pacific. PetroChina will not be able to ignore the lawsuit as in the US the plaintiffs would then win by default. It is interesting that even though the misconduct transpired in China and the investors are in the US, they still have grounds to claim damages. It is likely that more of these class actions might come out as China's corruption crackdown continues. Some of the country's largest success stories might find themselves on the phone to crisis managers as their reputations fall.
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As the country battles with corruption it also looking into use and storage of personal data. According to the police statement, there were dozens of reports from ChinaWhys that seriously violated Chinese citizen's privacy. The investigation is sending a clear message that the country is ready to battle misuses of personal data. Dan Harris of China Law Blog came up with three reasons as to why the couple were arrested: 1) they were consultants to GSK; 2) they did illegal investigations and; 3) ChinaWhys engaged in an illegal business prohibited to foreign companies using a WFOE. It could easily be any or all of these reasons – but personal data will definitely be a hot topic for the rest of the year.
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Shanghai Free Trade Zone extended
The SCMP reported this week that the government initially considered that all of Pudong would make up the Free Trade Zone. However, this idea was quashed because of concerns about financial industry risks and hot money inflows. The Shanghai Free Trade Test Zone (SFTZ) encompasses an area of 28.78km2 consisting of four existing free trade areas (FTAs): Waigaoqiao Free Trade Area ,established in 1990, Waigaoqiao Free Trade Logistics Park, established in 2004, Yangshan Free Trade Port, established in 2005 and Pudong Airport Comprehensive Free Trade Area, established in 2010.
It definitely seems quite a leap for the first FTZ to occupy such a large area of land. The government has played this right by occupying four already-established zones in which it can minimise any risk and potential fallouts. What is interesting about the article is that there is potential for expansion in Shanghai as Tianjin and Guangdong also lobbied for approval to set up the free trade zone. Market observers will have to wait and see if the government chooses to expand Shanghai or approve one of the other cities.
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