Tuesday 20 Oct 2020 | 16:36 | SYDNEY
Tuesday 20 Oct 2020 | 16:36 | SYDNEY

Fiddling the figures: China corporate culture

15 June 2011 14:20

Catherine Chan is an environmental lawyer and journalist in Beijing.

Despite the litany of Ponzi schemes and scandals involving America's big banks, China still can still teach the global superpower a thing or two about how to pull a scam.

Chinese companies listed on the Nasdaq face an unprecedented environment of distrust amid accusations of fraud. Last month the Hong Kong-based maker of financial software, Longtop, was accused of committing fraud amid an ongoing debacle that has had stock watchers suggesting that accounting irregularities at Chinese companies are spoiling the fun for everyone.

Longtop has announced that its auditor, Deloitte, has resigned, with Deloitte citing a string of misdemeanors including the deliberate interference by members of Longtop management in Deloitte's audit process. The US Securities and Exchange Commission has begun an inquiry into the matter.

Breaches in auditing and accounting standards seem to be the common concern among investors, despite the public insistence by major accounting firms that industry reform in China is ongoing. The partial adoption of the International Financial Reporting Standards by the Chinese accounting community is been seen as a step in the right direction — theoretically at least.

That fraud and bubbles are amicable bedfellows is axiomatic. Blind faith in the Chinese economic miracle seems to be something of a fixture in some investment circles. Hong Kong-based China Forestry Holdings managed to earn the backing of big names like the US Carlyle Group, but the former CEO was arrested earlier this year after embezzling 30 million RMB from the company. And Toronto-listed Chinese company Sino-Forest has been charged with misrepresenting its rights to timber acreage and overstating its revenues by research firm Muddy Waters.

The rush to list by Chinese companies, without adequate due diligence from regulatory authorities, means that in some instances, a 'rape, pillage and plunder' mentality of getting in quick and making a buck will prevail, particularly if later charges for fraud are only brought outside Chinese jurisdiction. 

Executives implicated in the scandal surrounding China Forestry have gone to ground, presumably in comfort. Conviction for fraud in China still holds some pall over Chinese executives. The execution of two middle-ranking executives involved in the tainted milk scandal of 2009 served as a high-profile reminder of the seriousness of such charges in the Chinese jurisdiction (even if the case was said to be a scape-goating that conveniently ignored responsibility at a higher level). But this only works if the charges are brought in China.

The recent Australian budget proves, as if further convincing was needed, that Australia's projected budget surpluses are heavily dependent on the China Boom Mark II. A few sharp shocks about the realities of Chinese companies might yet have an impact on Australia's economic prosperity.

Photo by Flickr user Jorge Franganillo.