Chinese firms’ missing $6 billion tests regulators’ resolve
20 May 2019

Cash is considered among the hardest assets for a company to fake, which is why the disappearance of a combined $6.1 billion from two Chinese companies has dumbfounded investors and forced regulators to take action.

Drugmaker Kangmei Pharmaceutical Co Ltd, a constituent of MSCI’s global indexes, in April said an “accounting error” led it to overstate cash in 2017 by 29.94 billion yuan ($4.4 billion). This month, Kangde Xin Composite Material Group Co Ltd, a producer of high-polymer materials, said its auditor could find no trace of the 12.21 billion yuan that it said it held in a bank deposit.

Regulators are investigating both cases and neither company has offered detailed explanations for the missing billions.

Weak governance has long been a black mark against mainland Chinese companies. Yet these cases have still stunned many investors as they involve straightforward cash, and because the sheer size of the disappearances is equivalent to more than half the two groups’ combined market capitalization before they disclosed the issues, triggering calls for tougher punishment for any corporate wrongdoing.

“If you tell me fish in a pond disappeared, I probably would buy the story… Tens of billions of deposits missing, that’s a bit unthinkable,” Liu Enqi, vice head of Bank of Nanjing Co Ltd, told Reuters. “If such things happened in the U.S., someone would be jailed.”

By Samuel Shen and Shu Zhang, Reuters, 17 May 2019

Read more at Reuters

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