Chapter 850 - Stocks and Bonds
The Executive Committee had approved the Guangzhou project's use of stock offerings and bond issuance to raise funds. Cheng Dong himself was highly supportive of this approach—a whole group of finance professionals in the fiscal departments had been frustrated and melancholy because they had no work matching their expertise. With the Grand World project, they could eventually promote this model, establish a stock market, and continuously drain capital from Guangzhou.
However, the Executive Committee harbored concerns about whether share offerings might lead to loss of enterprise equity. Although Dabo Shipping and Runshitang Pharmaceuticals were both share-based enterprises open to natives, their private shareholders were still drawn from "within the system"—naturalized citizens and collaborators. The Guangzhou Grand World project, on the other hand, would be an entirely public offering. The shareholder base would be complex, and some worried whether opening up share sales might create future entanglements over interests and obstacles to social transformation.
"When we formally rule Guangdong, we will certainly conduct a major purge of the existing gentry class, annihilating them completely in body and spirit!" Du Wen attacked this proposal fiercely at the meeting. "I find it strange—as a system founded on planned economy, why are we engaging in these capitalist crooked schemes..."
Qian Shuiting rapped his gavel: "Please keep your remarks on topic and don't bring up irrelevant matters."
Though Du Wen was generally unpopular among the elders, her words struck a chord with quite a few. Many felt they should not entangle themselves too deeply with the Ming Dynasty's vested interest groups.
Therefore, the person sent from the Finance Supervisory Department to respond was Chen Ce, Policy Division Chief of Delong Bank. In fact, he was not only the bank's Policy Division Chief but also the head of the entire Finance Supervisory Department's policy planning division.
"I would like to remind all my fellow elders," Chen Ce spoke calmly, "that whether it's public stock offerings or issuing corporate bonds, the essence is 'providing capital services for enterprise development.' I trust everyone understands my meaning." He paused. "Wanting to control the board of directors through stock purchases, and thereby ultimately gain a voice in or control of an enterprise's operations? That kind of thing only happens in what Elder Du calls 'decadent capitalist countries.' It didn't happen in the old time-space, and it certainly won't happen in this one. After all, we are the majority shareholders."
The faces of certain elders showed expressions of sudden enlightenment. Others did not quite understand and waited for him to continue.
"Big enterprises and big companies don't necessarily have to pay dividends," Chen Ce began to speak more plainly. "Besides, we can separately establish a holding company specifically for issuing stock. What, you never read the financial sections in the old time-space?"
But Chen Ce's approach was not entirely workable either. Profiting from speculation required a relatively regulated stock trading market, and Guangdong currently had no conditions to establish such a market. Both the Planning Commission and the Finance Supervisory Department opposed immediately promoting these financial instruments from the new time-space. Ming Dynasty people understood the concept of shares, but the sophisticated notion of buying and selling stocks for profit was beyond them. Their only concept of shareholding was that profits should be distributed as dividends. The Grand World project could hardly claim it was perpetually losing money.
After repeated discussions, the gentlemen of Wudaokou Tea House reached a consensus: for now, no stock market would be established. The Grand World project could offer public shares while also issuing corporate bonds—with corporate bonds as the primary source of funding.
To obtain working capital for construction as quickly as possible, Guo Yi immediately took action after receiving formal approval. He consulted with Meng Xian on how to actually implement this.
"Fine. First tell me how much money you need and how much you currently have." Meng Xian rubbed his chin—his bushy beard had long been shaved off because it made him look less like a respectable person, but he unconsciously retained the gesture.
"You know exactly how much money I have," Guo Yi said with dissatisfaction. According to financial regulations, the Guangzhou Station's cash flow now all passed through Delong Guangzhou Branch's accounts.
"It's not the same. Though I know your accounts perfectly well, that's the entire Guangzhou Station's money—not the Grand World project's investment. Those funds can't be mixed."
"The allocation from Cheng Dong is thirty-five thousand taels. That's the total value of all the reparations and personal compensation Guangdong paid us." Guo Yi spoke quietly. "This sum is now allocated to the Grand World project team."
But this money also had to cover the various refurbishment costs for reopening the Zizi brand shops, which alone would cost around ten thousand taels. The money left for the Grand World project was just over twenty thousand.
"Twenty thousand taels isn't nothing," Meng Xian observed.
Not nothing, but hardly adequate given the upcoming expenses. The Planning Commission had provided an estimate sheet: the entire Grand World project, including the preliminary building materials ventures, full completion including all equipment and personnel, would cost roughly seventy to eighty thousand taels.
Meng Xian said: "Let's calculate based on a pool of one hundred thousand taels. Better to collect a bit more."
Given the Guangzhou Station's operational capacity, earning eighty thousand taels was not particularly difficult. But the vast majority of the Station's revenue had to pay for the enormous quantities of imported goods already scheduled by the Planning Commission. That could not be changed arbitrarily.
"I'll put together an underwriting syndicate," Meng Xian proposed. "I'll contact several major money houses in the city to handle the sales. That way you'll immediately get one hundred thousand taels—without having to count small coins every day waiting for funds to accumulate." He glanced around. "Besides, selling stocks and bonds in your shops wouldn't look very professional."
Two types of securities would be issued. The first was Grand World project stock—seven qian two fen of treasury silver per share, equivalent to one Spanish dollar. Stock returns were not fixed; annual dividends would depend on the Grand World project's operations and profits. If business was poor, there would be no dividends, or smaller ones. The second type was Grand World project bonds, also priced at seven qian two fen per certificate. Bonds had a three-year term with annual interest of two percent. No compound interest; principal and interest would be repaid in full at maturity.
All stocks and bonds would be unregistered and non-replaceable if lost. This effectively acknowledged that stocks and bonds could be privately transferred—preparation for establishing future stock and bond markets. Europe's stock markets had originally begun as nothing more than private buying and selling in coffeehouses.
Led by the Guangzhou Branch, six other major money houses in Guangzhou were contacted to distribute this hundred thousand taels in stocks and bonds. Meng Xian himself subscribed first, taking twenty thousand taels. The financial strength of the Zizi brand shops, the Australians' power, and Meng Xian's unhesitating subscription convinced the money houses to subscribe without hesitation. The full hundred thousand taels was quickly distributed.
News that the Zizi shops were raising capital through the money houses immediately caused a sensation among officials. Everyone knew that Master Guo's enterprises generated a fortune every day. Many people had long been trying desperately to deposit their savings with the Zizi counters. Now there were shares available to purchase! Buying shares meant raising a goose that laid golden eggs! Officials at every level eagerly counted up the silver they had accumulated through years in office.
With officials so enthusiastic, ordinary commoners naturally would not fall behind. Gentry and great households with government connections received the news quickly and scrambled to send representatives to the underwriting money houses to pre-register, reserving quantities for purchase. But Meng Xian was conducting a hunger marketing campaign this time, strictly controlling the subscription certificates—he gave each underwriting partner certificates for only half their allotment. The rest would be sold publicly.
The obvious result was that subscription certificates immediately became a black market commodity. A certificate allowing purchase of five hundred shares cost only one hundred wen as a "processing fee" at Delong Guangzhou Branch; on the black market, the price escalated from two hundred wen to one qian, then five qian, one tael, ten taels, and finally reached quotes of fifty taels. By anyone's standards, that price was insane.
"It seems greed and speculation cannot be avoided in any time-space," Meng Xian remarked with a sigh upon hearing that subscription certificates were being speculated upon.
With officials and great households so eager, common people would not be left out either. At only seven qian two fen of silver per share, middle-class families could afford them. The common folk of Guangzhou had witnessed the various wealth legends of the Zizi shops with their own eyes. Now that they could share in the fortune, they were unwilling to miss out. They crowded in front of the money houses—even buying just five or ten shares felt like something.
In only four or five days, the underwriting syndicate's hundred-thousand-tael quota was completely sold out. In fact, if Meng Xian and Guo Yi had not deliberately allowed common people and middle-class families to purchase some of the securities, the local officials, gentry, and great households alone could have absorbed the entire allocation.
"We could absolutely have placed two hundred thousand taels..." Zhang Yikun, head of the Grand World project, grinned from ear to ear. With gleaming silver in hand, the project could now be pushed forward at full scale.
"What's the rush? This Guangzhou City is practically a black hole for silver. What's two hundred thousand taels?" Meng Xian waved dismissively. "Who knows how much silver is hidden in old misers' wall crevices and under their floors. We need to find ways to dig up all their money for our use. Consider this the first round. Later we'll issue a second, third, fourth round—extract it all."
Zhang Yikun nodded eagerly: "That's ideal. Selling continuously, using other people's money—such a great feeling." He thought for a moment. "We should sell more stocks and fewer bonds. Bonds have a guaranteed two percent annual interest. With stocks, we can just say business was bad and skip dividends. Those shareholders can't audit our annual reports anyway."
Meng Xian sneered: "This stock market mentality of yours is exactly how it gets ruined. You think shareholders are pigs, willing to be bled day after day while still rushing to get in? The way I see it, for the first five or six years we should definitely pay dividends no matter what—even if we don't actually make money, even if we lose money, we still pay! That way the second and third rounds, and future project stocks, will actually sell."