CRI听力:China Concepts Stocks Facing Credibility Crisis Overseas

At first, the booming Chinese companies' stocks were regarded as excellent prospects for overseas investors. But now these companies are facing ongoing accusations by third party institutions such as Muddy Waters, a financial research and consulting company based in the U.S.

Muddy Waters sent an open letter to companies like Spreadtrum Communications, a US-listed Chinese telecom manufacturer, and urged the company to provide explanations regarding their financing channels, recent CEO changes, and business growth issues.

At the same time, the open letter also caused the Spreadtrum's share prices to plunge by one third. Leo Li, its chief executive officer refuted Muddy Waters' suspicions.

"First, their accusations lacked evidence, and second their questions were only superficial. Third, the company doesn't understand our business at all. On the second day we answered all 15 of their questions right away, and they apologized to us on the third day."

The quick answers from the Chinese company enabled them to quickly regain the confidence of investors and afterwards, the shares began to climb in value. The Executive President of the China Mergers and Acquisitions Association Fei Guoping says companies like Muddy Waters have some benefits behind the scenes.

"This case is a typical one which sells China Concepts Stocks short. The open letters and so called market reports from research companies like Muddy Waters have resulted in the share prices of some Chinese companies to decline, which has also caused turbulence for nearly all the Chinese Concepts stocks."

'China Concepts Stocks' are the shares from a group of companies whose assets or earnings have significant activities on the Chinese mainland. The companies choose to list themselves overseas to gain access to investment capital globally.

In fact, starting from June last year, some American research companies targeted Chinese companies which had been listed via mergers with American companies. Investment research companies like Muddy Waters claimed that these Chinese companies had fabricated their accounting records and violated certain rules. Afterwards, the credibility crisis spread to listed Chinese companies on NASDAQ, causing China Concepts Stocks to shrink sharply in value. But every time, certain companies made huge profits shorting those stocks. The result was, 12 Chinese companies being halted from trading on the market, and 15 had to leave the market altogether. At the same time, these shorting strategies were also widely used on those Chinese stocks, which spread to Canadian and Hong Kong stock markets.

But why have these stocks, which once were market favorites, lost their appeal? Zhang Lianqi from the Ministry of Finance gives his insights.

"I think China Concepts Stocks have been demonized. I do believe there are some Chinese companies which have problems and are even fraudulent. But contrary to the rumors, the whole group of Chinese companies shouldn't be blacklisted. This goes against the rapid development, and what is really taking place in terms of Chinese economic development.

Experts point out that American stock analysis companies like Muddy Waters together with their partners have already decided to adopt the shorting strategy to devalue the Chinese Concepts Stocks in order to make profit from the whole process. This kind of strategy is rarely used in the domestic stock market. Experts point out that there will be more Chinese companies listing overseas in the future. Besides boosting their businesses in a healthy way, they should also be alert to the tricks played in overseas capital markets.

For CRI, I'm Liu Min.