Martin Lee @ Sg
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S-Chips Scandal Again!

It seems that the Singapore listed China companies (or S-Chips) are back in the limelight again.

Two firms, China Hongxing and polyester fibre manufacturer Hongwei Technologies have been suspended from trading due to accounting irregularities.

For China Hongxing, irregularities have been found in the cash and bank balances, accounts receivables, accounts payables and other expenses during the audits of subsidiary companies in China.

For Hongwei Technologies, auditor Ernst and Young highlighted issues pertaining to the cash and bank balances of its Chinese subsidiary Shuangli (Xiamen) Polyester Co Ltd.

The two companies join a list of more than 15 counters which are suspended from trading. The majority of these counters are S-chips companies.

I’m hardly surprised at the latest revelations. Forging fake revenue (with a tell-tale sign of large receivables that never gets collected) is a tactic used by fraudulent China firms to boost their earnings prior to seeking a listing in Singapore. Stealing cash from their bank balances is another.

Unfolding events have pretty much tallied with the confessions of this S-chip CEO which I urge you to read if you have not yet done so.

Fool me once, shame on you. Fool me twice, shame on me.

S-Chips anyone?

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6 comments
Daniel P says 8 years ago

I think the odds are stacked against us. The good/decent China companies will more likely list in Hongkong, USA. We are more likely to be scraping the bottom of the barrel when it comes to S-chips.

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singaporean says 8 years ago

I once worked in China and what I saw made me never to touch the shares of China companies ever again. Almost everyone in the company, from the local auntie cleaning the toilet, to the drivers to the managers are taking a bite off the company. Cleaners take toilet paper home, drivers take car batteries home and managers are more creative, they hatched elaborate schemes to frisk value and money off the company. What is left is an empty shell for shareholders to pay and pay. So what else is new?

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    chinese says 8 years ago

    I would say your view is not representative for Chinese companies, especially private ones. The S-chips are by and large Chinese SME, which can’t pass the stricter regulations of SSE, HKSE and NYSE. Their books have been massaged by book-runners and endorsers. BTW, I am also surprised you got hired by such a company.

    Reply
      singaporean says 8 years ago

      I do not work for Chinese SMEs, especially private ones. I was headhunted to work for world class fortune 100 Multi-Nationals that happened to have a presence in China. Whether they are located in Shenzhen, Suzhou or Shanghai, they are all the same from my experiences. Do not be surprised, as long as they have a presence in China, due to the culture of the Chinese there, the result will always be the same. Shareholders are the ones left holding the crying baby or empty shell after the locals there have pilfered, plundered and paralysed the company for their own gains.
      I made quite a few friends there who explained to me why they have to be like that. Some even entered the company with a five year plan to plunder the company once they have been promoted to a position that can facilitate their plundering. They somehow have the idea that it is inevitable for them to plunder as everyone else is doing it and it is perfectly alright to bribe, corrupt and plunder the company. You should be surprised if I have not left that country and companies.

      Reply
Singapore Man of Leisure says 8 years ago

Hello Martin,

A gentle reminder that we have our own Informatics, Centillion, and Pan-Electric examples. Do not trust Singapore stocks?

US have their Enron, Worldcom, and Madolff – don’t trust US stocks and funds too?

He who lives in glass house should not throw stones.

We have black sheep “financial planners” in the industry – how would you react if someone brush all financial planners with the same stroke?

Isn’t better to use these examples to help educate fellow investors on the importance of investing in what you understand, risk management, due diligence, etc.

For eg, a boring blue chip big cap and a flavour of the season small/medium cap S-chip have different risk/reward benefits. It’s buyer beware!

I read with pride that some investors of Lehman mini-bonds are not asking for compensation due to the fact they went in eyes-open. Now that’s taking investor responsibility!

It’s whether we “trust” the reflection in the mirror. That should be the question in my opinion.

Jared Seah

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    lioninvestor says 8 years ago

    Yes indeed, there are black sheep everywhere.

    Not my intention to blacklist all S-chips but I feel it is probably better for the man in the street investor to stay clear of them given that their corporate governance still leaves much to be desired..

    Reply
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