Is China Inc still credible?

By George Chen
June 9, 2011

By George Chen
The opinions expressed are the author’s own.

Chinese Premier Wen Jiabao once said there’s something even more important and precious than gold — people’s confidence.

In recent weeks, I’m afraid global investors have been losing confidence in Chinese stocks from the New York to Shanghai markets. Sino-Forest Corp became the latest victim of a slump in overseas-listed Chinese companies. The company earlier this week accused short-seller and research firm Muddy Waters of defamation for alleging in a report that it had fraudulently exaggerated its Chinese forestry assets.

Unfortunately, this is just the beginning of the hit to confidence over Chinese stocks, especially small caps listed at home or abroad, for example in Hong Kong, Singapore, New York and even on the second-tier board of the London Stock Exchange.

If you look at yesterday’s trading carefully, you may find investors suddenly became more cautious on small-cap Chinese stocks after the Sino-Forest case. There were already signs with the growing dotcom bubble exported by some Chinese Internet companies to Wall Street.

Remember matchmaking website Jiayuan.com, which recently listed on the Nasdaq? These days it’s in trouble with investors and users, who say its service may not be as good as its claim to be China’s No.1 online matchmaking site suggested. Read my previous column “Is China exporting a dotcom bubble?” here.

In China, the capital market doesn’t lack for bad news — fast-growing inflation, maybe 5.5 percent year on year in May to reach a 34-month high (official data to be released on June 14), slower economic growth amid tightening monetary policy and worsening liquidity in the banking system, and escalating property prices. There’s plenty of bad news, for sure.

Now we get the latest bad news (or even worse). Is China Inc still credible?

A friend at one of the Big Four auditing firms is saying the Big Four are becoming more picky about choosing Chinese corporate clients for IPO audit reports. In the past, clients were arrogant enough to be selective about the Big Four firms. Now it’s apparently the other way around.

One of the Big Four has put all ongoing China IPO audits on review. What does that mean for the public market and private equity business? It’s summer, which is to say holiday season. When you can’t see clearly, why not scale back and take time to think things through?

Take it easy. Confidence is gold!

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A worker cleans the exterior of a CRH 380A bullet train serving the newly built high-speed railway between Shanghai and Beijing during its debut test at the Hongqiao Railway Station in Shanghai May 11, 2011. REUTERS/Carlos Barria

3 comments

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Every one in China business world that related to overseas IPO activities are nervous about all these things.

Although they also knows that there may be quite a few financial tricks hide in somes companies that go IPO overseas.

Moreover, I don’t know if other people really respect the annual reports of many China listed companies. I am not saying those leading ones, but means many other candidates.

It’s really something I feel painful when watching.

And I would also remind people that there are companies that are honest with their financial reports in China, as far as I know. To name a few, Wanke and SOHO, the leading private real estate companies.

A nowadays problem might be two side, the captitals in West are eager for China assets,

while some China executives are too eager for these capitals or personal benefits they can finally get.

I feel China goverment need to do something to make people feel they really need to respect the nature of the trust between people and people.

Hope the world be a better place next season.

Posted by NewGlobes | Report as abusive

Someone needs to review the Big Four. Reviewing their own audits is not even supposed to come close to ever being something that they are not doing 24 hours a day. And it’s so well known that you can actually print in a Reuters news story that 3 of the Big 4 are merely fee collectors placing auditors with their clients, but don’t even review their audits? How did it get this far?

Posted by threeRivers | Report as abusive

Of course China is still credible just like the US, UK (Entire Europe), Africa, the rest of Asia and Africa. India is given credit and so Brazil and South Africa. China in fact helped the world in and during the recession. If we go into details then the other countries come under suspicion, which we don’t want to discuss. So on the face of it and recent revelations of cooperation, China is still credible.

Posted by petejd12 | Report as abusive