After a boom in Chinese IPOs on U.S. stock markets, a

rash of apparent wrongdoing at newly-listed China firms

is taking the shine off China stocks.



Huanqiu, People's Republic of China

U.S.-Listed Chinese Firms are Ruining China's Reputation


Are dishonest Chinese firms getting themselves listed on U.S. stock exchanges to reap rewards from the good reputation developed by their more honest, hard-working counterparts? According to this surprisingly self-critical article from China's state-run Huanqiu, U.S.-listed Chinese firms who break the law in the United States are ruining China's good name, and should be punished not only by U.S. authorities, but by China's.


By CCTV Analyst Lie Ge [摘要]


Translated by Sarah Chan and Haywood Ho


June 15, 2011


People's Republic of China - Huanqiu - Original Article (Chinese)

Looking for partners for selling books, marketing anti-virus software, setting up social networks, online gaming sites, or tire manufacturing plants - in recent months, like a river rushing toward the sea, there has been a great surge of Chinese companies that have sought to be listed on the U.S. stock market. Regardless of the industry, its scale or its profitability, people seem to think they can land successfully on Wall Street. It's a march that brings to mind a movie of a few years ago, Big Shot's Funeral. In the film, it seems that a famous American director wants to have the filming of his Chinese funeral listed on the NASDAQ. The theme is anything but an outrageous joke. Of course, the premise is that the funeral is funded by an IPO. [Believe it or not, the Chinese production stars Donald Sutherland as the American director].


Chinese stocks are surging on the U.S. stock market. According to SouFun, since the latest market uptick began in September 2010, a total of 38 Chinese companies have successfully listed on the U.S. stock market, attracting a total of $4.5 billion. Shanda Literature, classified ad site 58 City [58同城], Thunder [迅雷等], and other companies are also hot in the heels to be U.S.-listed. However, with the scandals and rumors swirling, U.S.-listed Chinese companies face an unprecedented crisis of confidence.


The reversal came faster than anyone imagined it would. Just six months ago, Dangdang [当当] listed on the NASDAQ with a price to earnings ratio of 103, jumped 87 percent on its first day of trading; then when Youku [] went public, its stock soared 161.25 percent on the first day; and Qihoo 360 [奇虎360] soared 134.48 percent on its first day. But now people see quite a different picture: from mid-March to mid-May of this year, of the 170 NASDAQ-listed Chinese companies, share prices for 130 fell, with 46 dropping more than 30 percent.


The situation is similar on the NYSE, where many Chinese firms have "nosedived." Even more embarrassing is that since the year began, 19 Chinese companies have suffered a suspension in trading on the U.S. market, and four companies face delisting. On May 31, trading in Jiangbo Pharmaceuticals [日江波制] was temporarily suspended. On May 23, Longtop Financial Technologies [东南融] announced that it was being investigated by the U.S. Securities and Exchange Commission. The company decided to commission auditors, the accounting firm Deloitte Touche Tohmatsu, which turned their own "clients" into regulatory authorities. It seems a good number of Chinese firms have committed misdeeds.


Some critics assert that this is a "conspiracy" involving investors who are making a profit by circulating negative rumors and then short-selling the stocks. However, anyone familiar with China's business climate and methods of growth must accept the real possibility that these negative rumors are facts.  



The biggest reason U.S. investors are optimistic about Chinese companies is China's huge and booming market of 1.3 billion people. In addition, experience tells them that investing in China is like money in the bank. In the early stages, the performance of China's rising U.S.-listed enterprises like Sina [新浪], Sohu [搜狐], Baidu [百度], Shanda [盛大] and Ctrip [携程] demonstrated China's market potential, forming a dream team of overseas-listed Chinese firms. Afterwards, PetroChina [中石油、], Sinopec [中石化], ICBC [工商银行], China Construction Bank [建设银行等垄断] and other state-owned monopolistic enterprises went public in the U.S., further extending the myth that one can't miss with Chinese companies.


Many utterly hopeless and domestically-listed Chinese firms see an opportunity, even if they have to use fraudulent methods. This is quickly exhausting the confidence that other Chinese companies have accumulated with American investors. Some of these Chinese enterprises were already "sick" when they went public and, during the financial crisis, "notorious" investment banks and various stakeholders helped them practice the art of deception to reap enormous rewards.


It now appears that many U.S.-listed Chinese companies are joining forces to destroy the good reputation of China's emerging and most innovative enterprises, destroy this hard-won financial platform, destroy the ambitious entrepreneurs who might have anticipated the future, destroy Chinese businesses, China's economy, and the overall image of the Chinese people. This is a loss much greater than those of these U.S.-listed companies and their investors. They may now be debtors, but it is the many Chinese enterprises and all Chinese people who will have to pay the price.


Thus, while these companies cook the books for auditors in the U.S. accounting system, it is in China that they operate. Relevant tax authorities in China should also conduct determined investigations of the companies involved, so that these firms, which are fast-diminishing US confidence in China, have no place to hide and are made to pay the price for their crimes.



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[Posted by WORLDMEETS.US June 22, 6:09am]


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