Yoshida in China: Going public would demystify Huawei

10/13/2012 11:08 PM EDT

The West is making a bet that the demands of a free market will force change upon China.

There's a fair likelihood it will. China is transitioning from a state run internal "command" economy where all aspects were planned and controlled by the government to a trading partner dealing with the rest of the world, which largely has to play by the existing world market rules if it wants to play at all.

The process of change will not be fast or easy, and in many cases various elements in China will be dragged kicking and screaming into the new world, but it will probably occur whether they like it or not.

Some years back, in an interview quoted in the Wall Street Journal, one of the then senior Chinese officials talked about the changes in the Chinese economy, and I thought of Humpty Dumpty's assertion in Alice in Wondeland that words meant what he wanted them to mean. China was transitioning from a Communist society to one that looked remarkably like Capitalism to someone from the West, and his comments were essentially "If it works, it's a triumph of the great People's Revolution", and what "it" might be was irrelevant. They would still be a "Communist" state, even if there *was* a thriving stock market in Beijing.

China's leadership seems to recognize the need to transition to a market based economy for China to achieve the economic growth they desire, but China is learning how to do it as it goes. There will be fumbles and mis-steps (like what is happening to their solar energy industry), and one question is how well they recognize tyhat such things are part of the process in a market economy and *will* occur.

10/11/2012 8:27 PM EDT

Hang Sang Exchange would be the place to start.

10/12/2012 11:24 AM EDT

You are correct. ZTE did an IPO on the Shenzhen in 1997 and another on the Hong Kong in December, 2004. My argument for going public won't hold for ZTE.

However, the key focus of the U.S. Congressional intelligence report is still on Huawei.

10/12/2012 6:59 PM EDT

Probably not. But at least, that's a start. Don't underestimate the power of being a public company. At least that will require the company to publicly disclose certain basic information, even though it's not perfect.

10/13/2012 10:50 PM EDT

The problem with an IPO from Huawei is how much credence to put in the underlying information.

It may "disclose certain basic information", but how does a prospective investor *verify* it? When large amounts of money are on the table, there's a powerful incentive to lie about your conditions and prospects, and there are reports on the financial pages over here frequently enough of suits filed by investors who claim they were lied to.

In the US, we at least have the potential safeguard of independent third-party auditors expected to examine the books and confirm that things are as the company states they are. (This is hardly foolproof - witness Arthur Anderson and Enron - but it does exist.)

What sort of independent verification do we have in the case of Hauwei? How do we independantly confirm the facts in any IPO are as they state? This is not a case where I would expect outside investors to take their word for it.