Fake Cash & Fake Accounting: Chinese Regulators Suddenly Halt 46 IPOs and Bond Offerings

The companies are clients of China’s 2nd largest audit firm, now under investigation.

On Monday, Jinhe Biotechnology and Liande Automatic Equipment disclosed in filings that they had been ordered by the China Securities Regulatory Commission (CSRC) to suspend their plans to sell bonds.

On Sunday night, four companies — Hunan Baili Engineering Sci&Tech, Jiaao Enprotech Stock, MLS Co., and Woer Heat-Shrinkable Material Co. – disclosed in filings that they had been ordered by the CSRC to suspend their IPOs in Shanghai and Shenzhen.

Regulators also stopped four IPOs on Shanghai’s Star Market, which itself debuted just last week with great fanfare. The 25 stocks listed on it gained 140% on the very first day, followed by steep declines the second day. The four companies whose IPOs got nixed, according to Yicai Global, were Beijing LongRuan Technologies, Beijing Transuniverse Space Technologies, Luoyang Jianlong Micro-Nano Materials, and Shenzhen JPT Opto-Electronics.

On Sunday, two companies disclosed that their bond offerings were stopped by regulators, according to Yicai. On Friday, seven companies disclosed that their bond offerings have been halted.

In total, regulators suspended 46 IPOs and bond offerings, based on filings made at the Shanghai and Shenzhen stock exchanges, including Shanghai’s Star Market, as of Monday, according to the South China Morning Post. The reason: these companies had chosen Ruihua Certified Public Accountants as their auditors.

Ruihua, the second largest audit firm in China, has been embroiled in scandals involving large amounts of fake data, including fake cash, on its clients’ books. The fakeness of this cash became obvious when these companies defaulted on debt that they could have easily serviced with the cash they claimed to have on their books but didn’t. And Ruihua had just signed off on those fake books.

The CSRC had finally put Ruihua under investigation on July 5 for allegedly falsifying information, according to Yicai Global, after the scandal of Kangde Xin Composite Material Group had blown up in January.

Kangde Xin had reported 15 billion yuan in available cash at the end of September 2018, but on January 15, 2019, it defaulted on just 1 billion yuan of commercial paper because that cash on the balance sheet didn’t exist.

It had been the third company in a row to default on a relatively small amount of debt despite huge cash balances on the balance sheet. “The defaults call into question the actual availability and amounts of reported cash balances,” Fitch mused at the time – a phenomenon I called “Fake Cash & Fake Accounting” in January, as China’s corporate debt was blowing up in record fashion.

CSRC then found that Kangde Xin’s controlling shareholder and former chairman, Zhong Yu, who was arrested, had embezzled funds from the company. The regulator didn’t specify if Ruihua or Bank of Beijing, the sole account manager to Kangde Xin, had helped to cover up the malfeasance, according to Yicai.

The company has also been accused of inflating profits by nearly 12 billion yuan over the past four years, “through fictitious sales, exaggerated operating costs and fictional expenses on research, development and sales,” according to Yicai.

And all under the intensely watchful eyes of its audit firm, Ruihua.

Another fake-cash company and Ruihua client, Furen Group Pharmaceutical, failed to issue cash dividends of 60 million yuan despite 1.8 billion yuan in cash on its balance sheet. When the Shanghai Stock Exchange investigated, it discovered that over 1.7 billion yuan were missing, and that the company had in fact only 3.8 million yuan in cash.

In total, 29 IPOs of companies that had Ruihua as auditor have been suspended, the CSRC said, cited by Yicai. And one of Ruihua’s clients has withdrawn its IPO application.

Investors in Chinese stocks have long been hounded by fake numbers on their financial statements. Fake cash balances are particularly pernicious in terms of audit quality because that’s one of the easier and most obvious and most important items to check out by the company’s auditor.

Fitch expects another record year for Chinese corporate defaults. And it’s during these defaults that creditors tend to discover what all is missing that they thought was there.

Nevertheless, this barrage of orders by regulators to dozens of companies – all Ruihua clients – to halt raising much needed new funds, either via stock offerings or bond offerings, is more than just another busy Monday in China’s corporate world. It shows that regulators are finally trying to crack down on pandemic accounting fraud that involves all kinds or participants, including the auditors.

“For developers and agents in most parts of the country who rely on foreign buyers, there is really no alternative to buyers from China,” explains the CEO of Juwei.com. Read…. US Home Purchases by Chinese, Other Foreigners Plunge Below 2012 Level. And the (for me) Chilling “Chinese Reaction” to it from the Largest Chinese Portal for US Homes for Sale

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  83 comments for “Fake Cash & Fake Accounting: Chinese Regulators Suddenly Halt 46 IPOs and Bond Offerings

  1. Iamafan
    Jul 29, 2019 at 3:16 pm

    This somehow reminds me of the fate of Bud’s InBev IPO.

    • steve
      Jul 31, 2019 at 9:51 am

      no that was merely ridiculous pricing

  2. Dale
    Jul 29, 2019 at 3:32 pm

    Thanks Wolf.

    I find it difficult to believe that the linked article (on plunging US home purchases by Chinese et al) is a coincidence. With flows of illicit fund increasingly scrutinized, along with more point of sale scrutiny in places like Vancouver, it would be amazing if home sales weren’t affected.

  3. doug
    Jul 29, 2019 at 3:41 pm

    Their actions must have been extremely loose, or a new era fraud prevention?

  4. Rinaldo
    Jul 29, 2019 at 3:50 pm

    Thanks, excellent post. These Ruihua guys probably were former employees of KPMG.

    • Anthony Aluknavich
      Jul 29, 2019 at 4:34 pm

      Or Arthur Anderson..

  5. David Hall
    Jul 29, 2019 at 4:35 pm

    Enron used fraudulent accounting. Some of its employees maxed out their 401k plans with Enron stock purchases. The stock went to zero in bankruptcy. They lost jobs and retirement savings at the same time.

    • Iamafan
      Jul 29, 2019 at 5:25 pm

      It ain’t just Enron. Think MCI-Worldcom and others. And then, there was Madoff, Corzine, and possibly others. They are learning from us.

    • Just Some Random Guy
      Jul 29, 2019 at 8:47 pm

      I don’t care what company you work for, investing retirement money in your company’s stock is idiotic. But of course everyone is a victim and never responsible for their actions. Enron forced them to put all their eggs in one basket. Just like all “victims” of the housing crash who were forced at gunpoint by eeeeeevil bankers to take out a loan they couldn’t afford.

      • Jul 29, 2019 at 11:35 pm

        Just Some Random Guy,

        Hold your rash judgment of “idiotic” for a moment. There are quite a few companies that are majority employee-owned, from Publix Super Markets, which has about 200,000 employees, on down to the small craft brewer. I doubt that a Publix cashier has a yuuge 401k stuffed with other investments, in addition to the shares of Publix. It may well be that the biggest financial asset they have are the shares of the company they work for.

        Is that risky? Well, yes, you’re putting two eggs (job and investment) into one basket. But think of it as a benefit – it’s part of the job.

        Now, if you’re a CEO of a big company, you can likely borrow money from your company to buy the company’s shares, and pledge the shares as collateral. When the shares tank, you just let the company have its collateral back, and no problem. This happened all the time during the Financial Crisis, and I know guy who was on this program … sweet deal.

        But that’s the hard-earned privilege of being at the very tippy-top, no? I mean, that’s how our noble and fair system works. When the S hits the fan, the little guy sees his retirement dream go up in flames while the CEO just walks away from those shares unscathed because the risk was 100% with the company to begin with.

        • Just Some Random Guy
          Jul 30, 2019 at 8:06 am

          Wolf,

          You’re perpetuating the victim mentality that has plagued our society. Nothing is ever your fault it’s the bank’s fault or Trump’s fault or Obama’s fault or (fill in your favorite villain here)’s fault. Everyone is just an innocent bystander.

          I will grant you that the cashier at Publix may not be a savvy investor. But Enron employed smart, ultra educated people. They knew what they were doing. They knew the risks and still went ahead with their decisions.

        • Jul 30, 2019 at 9:12 am

          Just Some Random Guy,

          “Victim mentality”: this is an expression the privileged use to denigrate the other 70% or so when they complain about how the privileged have rigged the system against the other 70% to perpetuate the privilege of the privileged. I assume that in real life you’re a nice likeable guy. But dude, your anonymous persona here sounds like a self-righteous hypocrite on a mission to spread this hypocrisy.

        • Just Some Random Guy
          Jul 30, 2019 at 10:40 am

          Wolf,

          Nothing hypocritical about calling BS on things.

          In the last housing crash who was the bad guy? Was it the home owner who cash refied $100K and then bought a boat and a Harley and a few trips to Tahiti, and then never paid the money back,. Oh no. He was a victim. Because the big bad evil mortgage lender forced him to take that money and forced him to go on a buying spree. Another set of victims were people who bought 5 houses with $0 down using NINJA loans. Then when the market went poof they were stuck with $1M in debt that had reset to 6%. The poor things didn’t know what they were doing. It was those greedy Wall St bankers who forced them to do that.

          Go to a car dealership on a Saturday afternoon and you’ll see a never ending stream of “victims” who buy $60K cars at 8% interest over 96 months. And when the inevitable repo happens, they’re victims of unscrupulous car dealers. Those dealers forced the poor things into buying the BMW that all their friends bought.

          These “victims” know exactly what they’re doing. And they’ve been conditioned to not take any responsibility for their actions, knowing a bailout is just around the corner.

          See also student loan debt which will soon be erased. Millions of ready made victims!!

        • Jul 30, 2019 at 4:07 pm

          Just Some Random Guy,

          Oh gosh, I couldn’t have asked you to prove my point better. This is why this persona you’re using is so mind-blowingly hypocritical. And apparently this persona refuses to see it:

          WEALTHY ASSET HOLDERS got bailed out by global central bank action to the tens of trillions of dollars. Instead of allowing bank bonds and stocks, and major company bonds and stocks to go to zero or near zero, and instead of allowing real estate prices to become affordable, and landlords to get wiped out, central banks did everything they could to bail all them out.

          This included brutal interest rate repression that wiped out savers and retirees, and QE of many trillions of dollars, euros, yen etc..

          That you complain about some poor guy wanting a little-bitty bailout on his student loan, when Warren Buffet got bailed out by perhaps $40+ billion dollars… and all asset holders with him to the tune of many trillions of dollars, that is hypocritical.

          Not only that. It’s brutal and nasty. It shows that the thinking process of your internet persona has been destroyed by the toxic aftereffects of those bailouts.

          It’s good to be successful, nay, it’s great to be successful, but do try to remain HUMAN!

        • wkevinw
          Jul 30, 2019 at 10:45 am

          Somehow I recall that the Enron issue involved the fact that the company required their employees to buy and hold Enron shares for years. That law was changed, I believe.

          A company can require that an employee “buy or receive” shares in the company, but they can immediately sell them now, I believe.

        • Jul 30, 2019 at 11:17 am

          I agree with Wolf, if you are going to buy stock buy the company you work for. You can see firsthand how they are doing. The difficulty for investors who own these shares is they sometimes allow loyalty to override good sense. If your shares are locked up then simply buy puts.

        • Bet
          Jul 30, 2019 at 12:56 pm

          I lived down the road from a guy, who got “enroned” yep in Texas it became an action verb

        • GirlInOC
          Jul 30, 2019 at 1:06 pm

          I really love this comment. Is there a way to “upvote” comments or “like” them???? or is that too Instagramy for this site? ;-)

        • kam
          Jul 30, 2019 at 2:49 pm

          Sino Forest, a Public Corp. on the TSE, and now defunct, sucked C$4 billion out of the public share and credit markets before their audited statements were declared fraudulent, for many years running.
          Caterpillar ate a US$500 million dollar write-down immediately after buying a Chinese coal-mining equipment business.
          This is not a coincidence. It is all founded on a culture of fraud.

      • Raymond Rogers
        Jul 31, 2019 at 12:10 am

        Just Some Random Guy,

        Good luck with your attempt to point out that there are more guilty parties than the list of evil bankers, evil politicians, evil investors, and evil buisinessmen.

        Personal responsibility does not exist anymore. When we fail to acknowledge that the overwhelming majority of people are mindless consumer-driven individuals who seldom think about long-term fiscal prudence, we will never have an honest conversation.
        The words “needs” and “wants” have become a singularity, and people are stunned when you insist that healthcare costs something.

        Hasn’t this site been tracking the decline in new car sales, while SUV and truck purchases have increased (up until recently)? Maybe it’s my imagination that the casinos, convenience stores, restuaraunts, car lots (SUV lots), and every other place peddling non-necessities are bustling with people. This doesn’t even go into the food delivery, online shopping, and online gaming sales.

        Try talking to average people about fiscal responsibility. I can’t tell you how many times I’ve received the cascading three-tier mushroom cloud mind-blowing look when I tell people I will not buy another vehicle (save for a total collision) until I pay off the house.

        • Jul 31, 2019 at 12:24 am

          Raymond Rogers,

          Tsk, tsk, tsk… Warren Buffet didn’t have to take “personal responsibility” for his idiotic high-risk bets on Wells Fargo and other companies. When the S hit the fan, he got bailed out because his big mistakes got bailed out. It took trillions of dollars and the greatest shift of wealth and income from labor to capital that mankind has ever seen. But he is a HERO.

        • wkevinw
          Jul 31, 2019 at 10:57 am

          Thanks to Mr. Richter for the truth on Buffett. He was bailed out, and I’m sure it had something to do with “political/government” connections.

          If you closely study his investments over the decades, he has changed what he invests in quite a bit. So, all these books about what he did historically are practically worthless if you are trying to follow Buffett today.

          Yet another myth, really.

        • Raymond Rogers
          Aug 2, 2019 at 10:52 pm

          Pointing out one ailment does not solve another.

          Nobody here has disputed what you pointed out with Buffett. Randon’s point was that we have a much deeper problem then some evil people running the show.

          The average American over consumesand puts too little thought into building wealth.

          Look at the average square footage for a home 30,50,70 years ago and then look at today. Look at what people buy now versus what people were satisfied in the past.

          Growing up soda was a treat, as was a meal at McDonalds. Now these things and a thousand others are treated like universal basic rights.

          You can’t just blame people like Warren. Outsourcing for the past 60 years happened because Americans accepted the collateral damage of their neighbors losing a job all because they wanted everything cheaper, so they could buy more useless crap to stuff in their homes. Few people did the math, realizing this would come back as a net negative.

  6. Joe
    Jul 29, 2019 at 4:43 pm

    My brother-in-law was fairly high up in BlackBerry in Canada and had a million dollars worth of stock…
    When it tanked, the stock was worth $50,000. But, the taxes valuation stayed at a million. So it would have cost more with the capital gains tax to cash them out.

    • MikeG
      Jul 29, 2019 at 11:33 pm

      I recall reading about a similar situation with Cisco employees after their stock plunged in the tech bust of 2000-2002.
      What happens in that situation? Is there no tax due if the stock is never sold?

      • Joe Lalonde
        Jul 30, 2019 at 4:02 am

        He can never sell it as the stocks are in his name and forever valuated at this level before the company restructured and the actual value plummeted. Capital gains taxes are at 60% I believe?
        To cash out and owe the government is not a smart move.

    • kam
      Jul 30, 2019 at 2:51 pm

      Blackberry, along with Nortel, were stripped bare by China.
      Huawei couldn’t tie a string between 2 tin cans without the intellectual property they stole from Canada and the U.S.A.

      • char
        Jul 31, 2019 at 10:04 pm

        Is Cjina the new name for Apple & Google?

  7. 2banana
    Jul 29, 2019 at 5:22 pm

    When investigators and auditors have no fear in their own lies, scandals, political partisanship and have no consequences for their own actions – corruption flourishes.

    “It shows that regulators are finally trying to crack down on pandemic accounting fraud that involves all kinds or participants, including the auditors.”

    • Joe
      Jul 30, 2019 at 4:18 am

      That is why governments around the world impose fines instead so that companies can still do illegal stuff and the executive don’t get prosecuted.
      Win,win for the politicians pockets with donations and companies have changed the laws and are now protected.

  8. Wisoot
    Jul 29, 2019 at 5:28 pm

    1.8 billion and 3.8 million – its an easy mistake to make! Companies holding this much as cash are not putting capital to work efficiently. Red rag to a shareholder. 46 suspensions – do these companies hold enough weight to ripple a jittery market? If yes thats bad news as China has invested in Deutsche which will receive an early xmas present. If no, thats bad news as investors will turn elsewhere where less obvious lies lie. Audit function has historically been in the pockets of repeat buyers of services. Its a very small market place – it needs a good shake down with smaller challengers rising to service the large floated companies and some private ones too. AI analytics capability just purchased in Australia by a big four player. In the end the game will be Google vs Amazon vs Deloitte – all your daily activity and your finances in one place. Comforting thought not.

    • kam
      Jul 30, 2019 at 2:55 pm

      Since a balance sheet is just a snapshot in time, it is not that hard to have cash balances on the last day of your financial statements, with nothing there the day before and nothing there the day after.
      Everyone massages numbers in the Public Corporation arena.
      But China is a special case where no one can be trusted.

      • steve
        Jul 31, 2019 at 9:56 am

        in china companies have been replacing entire staff at local bank branches for a long time for the audit confirmation and then the permanent staff move in later …Well known “trick” amongst Big Four in HK..

  9. Augusto
    Jul 29, 2019 at 5:38 pm

    Not sure if these aren’t just clamp downs for show…maybe followed by show trials. China’s financial system is under pressure and it seems to me that in the past this would have been papered over, but maybe now it can’t be, the cracks are getting too big, and so time to make an example of a few……or scapegoat a few…..someone has to take the fall and it won’t be the Communist Party.

    • Wisdom Seeker
      Jul 30, 2019 at 2:10 pm

      Watch what they do. If China really wants to make an example, they can go all the way to capital punishment over stuff like this.

  10. Timothy J McLean
    Jul 29, 2019 at 6:20 pm

    As usual, great information Wolf and facts that will go underneath the radar screen of the WSJ. What continues to amaze me is, apparently smart investors, continue to believe financial statements of Chinese companies mean anything.

  11. Senecas Cliff
    Jul 29, 2019 at 6:23 pm

    Many people speculate on when we will have a repeat of 2008-2009 but more and more I think our next downturn will be more similar to the bursting of the 2001 Tech Bubble, with Uber and Twitter playing the part of Webvan and the Chinese firms in this article (plus many others) playing the part of Enron. Except this time we will have bloated housing bubble along for the ride down the water slide, and the corporations, consumers and government will have been maxed out on debt. Look Out Below

    • sunny129
      Jul 29, 2019 at 8:16 pm

      Each bubble burst will be entirely different b/c of changed macro environment from the ones, before including 2000 or 2008! We have excess global wide unlike any time before!

      Most likely I venture out predict a major credit event- default or bankruptcy. Many prime candidates out there but my bet is on Corporate debt, followed by European Banks!

    • SocalJim
      Jul 30, 2019 at 7:27 am

      This time, I predict either slow growth with inflation, or negative growth with very little deflation. The amount of easy money the FED will throw at the next recession will be epic … and that will eliminate a 2008 deflationary event. The source of the 2008 credit crunch was bank balance sheets, and that will never happen again … the FED will make sure of that. All lot of people who failed to pick up cheap assets in 2008 – 2013 are pounding the table for a repeat … they want a shot to undo their mistake of not buying anything last time around. History will not be repeating itself.

      • SocalJim
        Jul 30, 2019 at 10:30 am

        This is my short term prediction. In the long term, inflation or deflation bust.

      • SocalJim
        Jul 30, 2019 at 10:52 am

        So, in my opinion, if you are waiting for a real estate fire sale in the next recession, you will likely be disappointed. However, over a few decades time horizon, it is likely a real estate fire sale will occur. Eventually, there will be another credit crunch. Question is how much inflation occurs over that long horizon before the next fire sale …

        • qt
          Jul 30, 2019 at 11:12 am

          I’m shocked!!! Living in Silicon Valley I even more shocked!!!

        • tom
          Jul 30, 2019 at 1:31 pm

          Off the beaten path……Like to listen to the old time radio shows.
          Was listening to a 1946 show from CA. They were lamenting house costs & rental rates. 73 years later……..

        • GirlInOC
          Jul 30, 2019 at 2:40 pm

          A real estate fire sale would be sooooo nice for those of us priced out of anything semi-decent. But I’d settle for a Semi-Annual Clearance sale. I’m so tired of looking at small ranch style boring old houses priced at 700k (or worse, flipped houses bought for under 500k and then placed on market over 700k, ugh so many flipped houses).

          Admittedly, I look at OC 2012 prices as longingly as I look at pictures of my 2012 thighs….i fear both will never return.

  12. Cashboy
    Jul 29, 2019 at 7:16 pm

    I am sure there are companies in the west as well.

    If I had to guess, I would think Fiat-Chrysler could be another Parmalat.

    We are also seeing Woodford Equity Fund and other funds that have dubious valuations and using Guernsey stock exchange to make the investments “legal”.

    There appear to be a lot of off-balance sheet stuff going on in companies.

    There appears to be way under provision for bad debts by banks enabling them to increase turnover with intrest receivable having the effect of increasing net capital enabling it to loan even more.

    I have seen a lot of costs being capaitalised on the balance sheet as opposed to being correctly put in the accounts as costs in the Profit and Loss account.

    Revenue recognition (especially regarding telecoms and computer sales with warranties) has often been dubious dependent on “accounting policies” and appear to forget the “prudence” concept.

    Cashflow has always been important. It is like a plumber being able to quote and get the job of the installation of a boiler and would make a profit but has no money to buy the materials or even fuel for his van.

    I have seen in the UK where Train Operating Companies have agreed delayed payments to other Train Operating Companies and the Rail Network on outstanding debts so the bank balance (hence cashflow) on the balance sheet looks more liquid when their companies have different year ends.

    • DoubtingDick
      Jul 30, 2019 at 3:20 pm

      ‘Prudence’ as an accounting concept – how dated. It was ditched when IFRS was introduced.

  13. raxadian
    Jul 29, 2019 at 7:58 pm

    What I said back then:

    [So the Chinese “Miracle Econony” dragon turned to be made like most dragons in Chinese festivals, out of cardboard. And then it started to rain…]

    Looks like the rainy season is still going for our “mighty” cardboard dragon…

  14. Just Some Random Guy
    Jul 29, 2019 at 8:41 pm

    Chinese companies aren’t on the up and up?
    I. AM. SHOCKED.

    • Mike G
      Jul 29, 2019 at 11:37 pm

      A Chinese public company with accurate financial numbers would be bigger news.

      • d
        Jul 31, 2019 at 4:58 am

  15. Jack
    Jul 29, 2019 at 8:51 pm

    Don’t forget some of these Ruihua dudes will end up in front of a firing squad!
    or at least a lengthy jail sentences!

    The SEC however is a toothless tiger now, and just rubber stamps any sort of IPO!

    Think back to Lift , Euber and beyond meat..,, etc.

    ah and one more thing , Fitch and its other two sisters are so immersed in this shonky system that getting rid of them would be a requirement to cleans and RESET the Financial system.

    Off course getting rid of the FED will have to go in tandem.

    Madoff was just the unlucky guy who was scapegoated in the process that got halted quickly by helicopter monetary theorists!! :)

  16. nick kelly
    Jul 29, 2019 at 10:40 pm

    An accountant with a blog called Deep Throat has a piece: ‘Ten cent….about what it’s worth …’ that seems to do a pretty convincing job of explaining why the conglomerate’s accounting is not ‘LIFO or FIFO but SAY SO’

    He wonders if its gaming income is possible given that most of them are free and none of the other world players report anything like 13 billion.
    It’s mostly over my head but I’m sure WR or anyone with an accounting background will find it interesting.

    • ZeroBrain
      Jul 30, 2019 at 12:19 am

      Can you link the article? I don’t want to search “deep throat” from my work’s network and it probably wouldn’t come up with your article anyway.

      • nick kelly
        Jul 30, 2019 at 6:22 am

        I began by entering ‘ten cent’ after reading the above and quite early an entry caught my eye: ‘Ten cent….about what it’s worth. ‘

        If u enter just the last it will prob come up. Or start with Ten cent

      • Iamafan
        Jul 30, 2019 at 9:50 am
        • nick kelly
          Jul 30, 2019 at 10:44 am

          ‘Audit Fees (Pg 225)

          You couldn’t successfully audit a good-sized publicly held, domestic US Car Dealership for the fees that PWC Hong Kong charges to audit a global enterprise like Alibaba’

          From Deep Throat on WS Aug 2018. I mentioned something like this on WS a few weeks ago but couldn’t remember where I’d read it!

          Sounds like not PWC just regurgitates whatever Ali feeds them.
          Maybe the inevitable crash will produce another Anderson.

        • ZeroBrain
          Jul 31, 2019 at 1:34 am

          Thanks!

    • Jul 30, 2019 at 1:56 am

      I remember researching that company and doing some ground truth checking. It struck me their operation was only a few percent of what they were claiming.

    • Tinky
      Jul 30, 2019 at 10:09 am

      While I don’t doubt that DT was essentially correct about Tencent, that post was written four years ago, when the stock was trading at around 150 HKD. It is currently trading at 373, and peaked at around 470 in January of ’18!

    • stan6565
      Jul 30, 2019 at 4:03 pm

      https://deep-throat-ipo.blogspot.com/

      He’s been on this case for a few years now. Must be read only in a totally sober state as it’s kinda mind boggling.

  17. Mike
    Jul 30, 2019 at 3:17 am

    I am amazed. However, since the rulers of China have on per capita average killed more people than US serial killers, fear may prompt even financiers and their auditors to be more honest and diligent. The top leaders and their cronies own businesses may be a different story.

    Still even mass killings may have a miniscule benefit.

  18. Jessy S
    Jul 30, 2019 at 3:29 am

    Thanks for this article Wolf. This helps refute the argument that a commentator named Jack made about the Chinese economy not collapsing. This article presents proof that the next downturn might be caused by the house of cards imploding in Beijing. There are endless reports of trouble in the country and Jack is just covering his ears with his hands and not listening.

  19. Dave Mac
    Jul 30, 2019 at 5:56 am

    The protests in Hong Kong aren’t subsiding, if the spirit of rebellion spreads further into China, things will get very interesting indeed.

    I’ll be a big buyer when there’s “blood on the streets”

    • Jul 30, 2019 at 11:26 am

      I don’t imagine HK being a catalyst, anymore than watching a Trump rally in NC moves voters in California to join his party. Not really sure how mainlanders feel about Taiwan either. I see problems in E China which override politics. Microeconomics also drives political discontent, and may even appear to be a universal cause that unites all Chinese. I doubt it, and consider a more parochial breakup is likely.

    • steve
      Jul 31, 2019 at 9:57 am

      they are..and rapidly..11.000 on march last Sunday down 99 per cent

  20. Charles
    Jul 30, 2019 at 6:45 am

    If there isn’t a some sort of liability that is associated with auditing fraud, people will vote with their pocketbook and sell shares of companies audited by these auditors. Arthur Andersen went out of business over Enron. Share price is everything. If these companies are really insolvent, the insiders will bail out way before the public because they have the true information. Enron was going downhill while things were supposedly fine. Price is everything.

  21. CoCosAB
    Jul 30, 2019 at 7:47 am

    At least in CHINA they still stop a little of FRAUD, even if it is just for show!

  22. Stephen
    Jul 30, 2019 at 8:03 am

    So, the question all of us ask ourselves every day is ‘How deep does the rabbit hole go?’ I suspect much deeper than any of us could possibly know or estimate. It’s really peeling an onion of unfolding possibilities. In the end, you have little choice but to stay positive and execute your game plan….whatever it may be. I feel a little fatalistic about this, but the planet has been here for billions of years, so things I am sure it will just chug on …..with or without your 401K!

    • raxadian
      Jul 30, 2019 at 11:34 am

      So deep lava starting coming out?

      Why else do you think China decided to suddenly become even more totalitarian? Because their cardboard dragon is leaking water everywhere and they are desperately patching it up but since is cardboard all they are doing is slowing things until the cardboard is so wet the dragon becomes useless.

      Now if you meant the whole world… take a look at the latest Wolf podcast…

  23. Iamafan
    Jul 30, 2019 at 8:06 am

    IPO and ETF and MBS and ABS and CLO. What’s wrong with these three-letter words? Instead of making you run away fast, they tempt you to stay and listen for a while.

    • Cashboy
      Jul 30, 2019 at 9:47 am

      Doesn’t anybody wonder what people in the financial cities would do for a living if IPOs, ETFs, MBSs, ABSs and CLOs and other “synthetic” products didn’t exist” ?

      In reality none of these have anything to do with raising real capital for real companies.

      When will people realise that it is all a load of crap?

  24. timbers
    Jul 30, 2019 at 9:35 am

    The Internets are telling me:

    Record Stock Prices

    Record Real Estate Prices

    Surging Real Estate Sales

    Surging Consumer Confidence.

    And where’s the Fed? Ho, there it is….

    FED: It’s time for an Interest Rate Cut!

    Everything is upsidedown and backwards.

  25. RD Blakeslee
    Jul 30, 2019 at 9:42 am

    Hey Paulo,

    Here I am, only minimally and indirectly affected by all this, but I read it for educational purposes.

    There ARE ways to live that way.

  26. nick kelly
    Jul 30, 2019 at 10:09 am

    After entering ‘ten cent accounting ‘ I thought I’d see what ‘Ali Baba accounting’ would cough up. Not too far down is a piece: ‘The Ali Baba Short Thesis’

    This is way less drastic than the ten cent thing which basically says it is fraud, but the author points to very bad macro issues in China. Number One: real estate.

    He says ‘some estimate real estate is 30 % of China’s GDP’

    If true I believe this is a record, maybe edging out the Irish phenom pre the 2008 crash that saw Ireland’s three largest banks go bust and required a massive ECB loan to the Irish govt.

    • d
      Jul 31, 2019 at 5:07 am

      The CCP just indirectly bailed out another 100 BILLION $ bank. Thats 2 in less than 2 months.

      2 + B $ is not a huge number considering then size of their “banking” industry.

      However this is starting to add up, how much is it when the Covert bailouts are added?

      How long before these Overt and COVERT bailouts start having a domino effect, outside ccp land???

      When china sneezes, the WORLD catches a cold.

    • Jessy S
      Jul 31, 2019 at 5:09 pm

      For the record, China’s economy is mostly real estate, and it is nothing but expensive ghost towns.

  27. tommy runner
    Jul 30, 2019 at 10:18 am

    a sneeze, or just a sniffle.. (more dots)

  28. Maximus Minimus
    Jul 30, 2019 at 10:59 am

    Perhaps the big news for some is that China has 42 IPOs in the pipeline, all sounding science/engineering type…

  29. Mike
    Jul 30, 2019 at 10:27 pm

    Maybe the China blocked them asking them to list on the US market instead :)

  30. Russell
    Jul 31, 2019 at 8:59 am

    Wolf,

    What is our defense against big business, government, etc? I realize I am late to the conversation with you/Some Random Guy, but I can see both sides of the argument.

    He is correct in that the average guy fuels the rich by not living within his means and eventually pays the price.

    You are correct that the government consistently bails out businesses that fail with the proposed assumption that it is necessary to save jobs/our economy when the average guy does not have that luxury.

    What can we do to change the system so that this cycle doesn’t continue? Our government in its current form only gives two options (Republicans and Democrats) and both favor big business; they just promise different things to different people and deliver the same results.

    • Jul 31, 2019 at 10:33 am

      Russell,

      “What can we do to change the system so that this cycle doesn’t continue?”

      Let the market do its thing. The Fed should never cut its short-term rate below the rate of inflation; no more QE ever again; and no more Fed bailouts of stockholders and bondholders. The banking system, if it needs to be saved and if banks need to be “resolved,” it needs to done on the backs of stockholders and bondholders. And that’s about it. It’s not hard.

      For companies other than banks, the US bankruptcy system works well enough.

  31. Russell
    Jul 31, 2019 at 11:31 am

    Wolf,

    I agree with your solution, but getting the Fed to respond that way is where we lack the ability. They definitely have political bias whether we care to admit it.

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