Duke Law in China: Gao Xiquing '86
Gao Xiqing was a key architect of Chinese Securities Law and is now Vice Chairman of a fund set up to manage Social Security Reserves for 750 million Chinese citizens.
Gao Xiqing says that he has never had a job he did not instantly enjoy, or come quickly to like, and has tried to excel in every position. That was true, he says, when he was assigned to do manual labor on a railroad in his early teens, and during the year-and-a-half he spent as a bench worker in a Chinese artillery factory.
"I call myself a Lei Feng type–a small cog in a huge Party machine, and wherever they put me I'm happily there." He has brought the same optimistic attitude to such daunting professional challenges as establishing rules for China's nascent capital markets, and managing its social security fund.
It was always Gao's intention to return to China and participate in reforms there. While working as an associate at the Wall Street firm Mudge Rose Guthrie Alexander & Ferdon following his graduation from Duke Law, he and other Chinese expatriates engaged in on-going discussions about establishing stock exchanges in China.
"Even Marx praised stock exchanges and banking systems. He regarded them as tools, rather than goals, and tools can be used by anyone–they can be used to serve the purposes of the poor people and the working class. So in my mind, in order for China to change for the better and compete, we needed a better financing system. Stock exchanges were an inevitable part of that.
"From 1985 on, capital markets were on the reform agenda, but very little was actually being done. After a lot of deliberation, a group of us decided that it was time to put up the proposal. In 1987-88, things were very, very active in the ideological world in China, and in the political arena, and we thought that if we put forth these ideas, there was a chance that they would be accepted."
Having gained critical experience in the operations of the New York Stock Exchange and the Securities and Exchange Commission (SEC) while at Mudge Rose, Gao returned to China in 1988, touring various European stock exchanges en route, including a new one in still-socialist Hungary. He subsequently took a leadership role in drafting the securities rules during "three sleepless weeks" in the spring of 1989; the rules were released at the end of April.
"But by then the students were already out in the streets and in Tiananmen Square, and it was tabled. Nobody could bring themselves to think of it for awhile," he recalls. By the end of the year, things were back on track, with the Chinese leadership committed to moving forward with reforms as opposed to returning to a planned economy.
While ideally, says Gao, securities law would be passed nationally, the Shanghai and Shenzhen city governments were given limited authorization to draft their own regulations; Gao and his colleagues were involved in drafting the corporate laws and securities regulations for both cities' stock exchanges, the first in China. Drafting itself posed a particular challenge because the Chinese language lacked the requisite vocabulary.
When necessary we either used English translations or made up the words," recalls Gao.
"Today, many people say things like ‘market makers' with ease, but in those days, people laughed because it sounded so strange–in Chinese, ‘market maker' sounded very much like ‘love maker.' Now we have the words we need, and nobody thinks about where they came from.
The fact that China is not a capitalist country–private ownership is still a new concept–forced quite a number of compromises, acknowledges Gao, who served as vice chairman of the China Securities Regulatory Commission (CSRC) from 1999 to 2003.
"The American [securities] system is still regarded as the best in the world. While we tried to copy it in many ways, we also borrowed rules from the British, Taiwanese, Japanese, and German systems, because the American rules of laissez faire sometimes just wouldn't work in China. People wouldn't agree to it. Even after all these years, we have a system that looks on the surface like others, but when you talk about the enforcement level, and the actual details of the laws, it's very different.
Gao has been a consistent advocate of a mandatory disclosure system, similar to that of the U.S. "Basically that means that as long as you disclose what you are selling, you can sell almost anything–the government won't stop you from selling bad things, as long as you disclose that they are ‘bad things'." He has been openly critical of the Chinese government's insistence on approving all listed stocks, feeling that it automatically signals to the investor that the investment is a good one.
"Since 1990, the number of listed companies has grown to 1,400 from the eight originally listed. Probably only 100 are worth investing in. To me, that shows the failure of our approval system. No matter how good the intention, the state can't possibly do the job. Business is a complicated thing. And the government can't make up all these numbers and decide which is good and which is bad. Nobody is able to do that."
The fact that he can state his criticisms publicly is a testament to how far China has come towards freedom and democracy in 20 years, Gao says.
Party politics are still closed, but everything else in China–economic reform, finance, sports, daily life, sex–are more freely discussed than in most countries in the world.
In 2003 Gao became vice chairman of the National Council for Social Security Fund, charged with managing the social security reserves. Set up in 1997 to handle the retirement needs of urban residents only–a population currently in excess of 750 million–the fund has only about $20 billion dollars.
"We're trying to grow it, and we're trying to persuade the government to open other resources for the fund," says Gao. Whereas current rules allow the fund to be invested in both the fixed economy and the equity market in China in a very limited way, the government recently gave the go-ahead in principle for some of the money to be invested abroad. "We are still waiting for the state council to come up with some rules, after which we will assign a small amount of our money to international investment."
The job particularly suits the idealist in him, Gao says.
"When I was at the CSRC, very often I would be accused of not having enough sympathy for the small investors in the market. I would say, ‘Our small investors may look poor compared to the big capitalists, but they have some money to play with.' I felt like I was serving the rich people there. Finally I can tell my conscience that I'm doing the right thing, because I am serving the truly poor people. I am helping people who have absolutely no means to help themselves."
In that spirit, Gao recently started a charitable fund, with the support of some of his former students, to directly help children in the poorest areas of Tibet and Mongolia stay in school. While nine years of education are government supported, many families in poor areas take their children–most commonly their daughters–out of school in order for them to earn income. The fund provides families enough income to make it worth their while to let them stay in school. It also assists some high-achieving high school students meet expenses. Last winter, Gao took a 5,000 mile train trip with his six-year-old son last year to visit families of scholarship recipients.
"It was a good experience for my son. He gave a report to his teacher, and I talked to his class about how lucky they are, and how sympathetic they should be to poor families."
Asked of which of his achievements he is particularly proud, Gao demurs. "I'm not done yet–there are many worthwhile things still to do."