Investing in Chinese securities is not for the faint-hearted. Almost every year since H-shares started reporting, sharp-eyed analysts have found worrying pieces of news tucked away in footnotes to company announcements. Last year the problem was housing reform. This year, it would appear to be bank deposits.
Two H-shares - mainland Chinese firms that are listed but not based in Hong Kong - have had trouble retrieving fixed-term deposits from well-known Chinese banks and non-bank financial institutions. One H-share, Dongfang Electrical Machinery, was taking legal steps to recover its money while the other H-share, Maanshan Iron and Steel (Magang), was able to secure agreement for repayment from its financiers only after the central bank intervened.
The fact that Dongfang and Magang were unable to retrieve funds placed with mainland banks and financial institutions appeared in small print in the final results published by the two companies in late April. Dongfang is owed Rmb156 million ($19 million) by the Chongqing branch of the Construction Bank. Interest income of Rmb13 million on these deposits was booked to profits for 1997. In the case of Magang, which is owed Rmb339 million, interest was not booked on the amount in its 1997 profit and loss statement but the company has made provisions for costs associated with getting the money back.