China's equity underwriters, for example, commonly use bribes to land new deals and to win approval for new listings. Dozens of underwriters and traders say the bribing of government and regulatory officials has become the rule, not the exception. But the securities commission also controls pricing, requiring that new offerings be pitched at no more than 15 times earnings, regardless of fundamentals. The controls are in place to guarantee that new issues won't flop. But they make initial public offerings a sure bet because the average market multiple is currently over 35.
Local governments have the right to pick which firms list first.
Those ties often lead to bribes. The underwriter, who asked that he not be named, says in the past month alone he has given away a mobile phone and picked up a week's hotel expenses for a government official in Anhui province. The result is that many of the companies listing now are only marginally profitable. Bribes aren't the only problem. Sue Song, a veteran securities trader in Shanghai, says she recently got a call on her mobile phone from a senior manager at a state-owned company.