By reporter Feng Heng of the Economic Observer, reporting from Qingdao - The cries of killing fill the air, and rivers of blood flow. In 2011, Chinese concept stocks were repeatedly slaughtered in overseas securities markets. Who are the killers? Who is feeding ammunition to the "air force"? And who is acting as their vanguard?
Due to continuous reports questioning Chinese concept stocks issued by foreign investigative platforms such as Muddy Waters, Citron, and Alfred Little, which mainly target Chinese concept stocks, many Chinese companies listed on the US stock market have suffered heavy losses with their share prices plummeting. In this "feast" of short-selling Chinese concept stocks, a chain of interests has gradually emerged, from the production of investigation reports by investigation agencies to the profit-taking of short-sellers.
According to investigations by the Economic Observer, apart from foreign investigation agencies profiting through short-selling, a company named "Qingdao United Credit Business Consulting Co., Ltd." (hereinafter referred to as Qingdao United Credit) once cooperated with short-selling institutions, providing them with paid access to some companies' business registration materials, becoming a crucial link in the entire short-selling chain.
In an interview with the Economic Observer, Li Chunyang, chairman of Qingdao United Credit, said that they had only investigated "a few companies," and that "the businesses we cooperate with are all small-scale ones, not our main business."
However, according to staff at Qingdao United Credit, the "enterprise credit report preparation and credit investigation" service provided by the company based on official business registration materials has been clearly priced: for investigating one company, Qingdao United Credit charges a minimum fee of RMB 1,000.
Short-Selling Battle of Chinese Concept Stocks
In June 2010, foreign investigation company Muddy Waters published a research report on its website targeting the Chinese concept stock-listed company Orient Paper, accusing it of fraudulent behavior. According to media reports, on the day the report was released, Orient Paper's stock price fell by 13.2%, and within half a year, it dropped by 32.89%.
Following Muddy Waters, Citron Research and Alfred Little became familiar to investors. They respectively issued reports questioning companies such as China Valves, TAF Electrical, and Silvercorp Metals, causing these companies' stock prices to plummet.
These institutions are not "obligatory counterfeit fighters." In fact, aiming at Chinese concept stock companies, conducting detailed investigations, issuing reports to strike down their stock prices, and ultimately profiting from this shortcut has become familiar to survey companies and individuals who have purchased "short positions" in Chinese concept stocks. Analyst Feng Po from CVSource Group pointed out, "Muddy Waters shorts Gaosu Channel, first borrowing some shares, then selling them; when the stock falls to a certain extent, they buy back the shares and return them, making money from the difference in price."
However, how do overseas private investigation agencies and even individuals manage to produce convincing investigation reports spanning dozens of pages, targeting Chinese concept stock companies from afar?
As media attention grew, domestic consulting companies began to appear in the ranks of short-sellers.
For example, media reports revealed that John Bird's attack on China Tianyi Pharmaceutical relied on business registration materials provided by Qingdao United Credit; other media reports indicated that in the case of Muddy Waters shorting China High Speed Channel, Muddy Waters compared financial data from business registration documents with those submitted to the U.S. Securities and Exchange Commission (SEC), uncovering discrepancies and questioning China High Speed Channel's "exaggerated revenue and profit figures"; another report stated that after John Bird "hunted" Tianyi Pharmaceutical, Muddy Waters and other companies repeatedly purchased business registration materials provided by Qingdao United Credit.
What exactly is so special about this "Qingdao United Credit" company, and how does it collaborate with short-selling institutions?
Investigations Start at RMB 1,000
According to investigations by reporters, Qingdao United Credit's current business scope includes enterprise management consulting, financial management consulting, market research; software and network development and maintenance. Credit card payment reminder services; personal payment reminder services commissioned by banks (this business shall not be conducted without signing a "Commission Agreement").
In numerous job postings from Qingdao United Credit, it is shown that they conduct "accounts receivable management and bad debt collection and trading business," and display membership in the "American Collection Association (ACA)" and the "International Creditors Association (CI)." How did the "payment reminder service" in the business scope turn into a "collection service"?
Among the services offered by Qingdao United Credit is "enterprise credit report preparation and credit investigation." Regarding the specific content of this service, a reporter consulted anonymously with a staff member of Qingdao United Credit, who immediately asked, "Do you want to investigate foreign companies or domestic companies?"
The aforementioned staff member introduced that "enterprise credit report preparation and credit investigation" involves verifying the background of enterprises' credit based on official business registration materials (including registration information and financial information), and producing a "enterprise credit report" to provide feedback to clients.
For investigations into domestic companies, the investigation fee is "RMB 1,000 per report"; for investigations into "American companies," the fee ranges from "RMB 1,000 to 1,200"; the form of credit investigation is presented as an "enterprise credit report."
The staff member also told the reporter that although Qingdao United Credit "usually does not" conduct field surveys, if the client can afford the cost, Qingdao United Credit can arrange for lawyers to conduct field investigations. Such services are more expensive, "mainly due to lawyer fees charged by the hour, plus reimbursement of round-trip tickets for the lawyer. Lawyer fees are several hundred yuan per hour, and ticket costs are reimbursed based on invoices."
According to reports, the official website information of Qingdao United Credit also shows that they can create "in-depth enterprise investment reports" for clients, including public information, official information, information obtained from interviews with related parties, detailed financial analysis, etc. However, when the reporter checked, the official website currently cannot be accessed. A staff member of Qingdao United Credit stated that it is "under maintenance."
The "Investigation" Services of Qingdao United Credit
Reporters from the Economic Observer learned that the major shareholder, legal representative, and general manager of Qingdao United Credit is Li Chunyang. In 1997, at the age of 24, Li Chunyang resigned from a trade company and co-founded Qingdao United Credit with a surnamed Jiang shareholder and a surnamed Wang shareholder.
When Qingdao United Credit was established, Li Chunyang contributed RMB 35,000, the surnamed Jiang shareholder contributed RMB 30,000, and the surnamed Wang shareholder contributed RMB 35,000; the business scope included market research, business intermediary services, and information consulting services. Market research services were once removed from the business scope.
After two rounds of capital increase, the company's registered capital is now RMB 6 million. Of the three founders, surnamed Wang and Jiang transferred their shares and left the company. Currently, Li Chunyang and 10 new shareholders hold shares in the company, with Li Chunyang holding over 80% of the shares.
On the afternoon of February 3, reporters from the Economic Observer contacted Qingdao United Credit, but the other party was unwilling to meet with the reporter. Through the publicly available address of Qingdao United Credit, the reporter arrived at the company's headquarters, located on the 23rd floor of a commercial building on Zhongshan Road in Qingdao City.
There was only a door number outside the office, with no company logo. It looked similar to an ordinary residential unit. After entering the room, the reporter found that the room was about 30 square meters, with 4-5 staff working on computers, but they were unwilling to communicate with the reporter.
This seemingly ordinary company, according to its recruitment information, has already established branches in 12 cities across the country, with more than 200 employees, and its business has expanded to over 200 countries and regions.
Regarding past cooperation with short-selling institutions, Li Chunyang did not deny it. He admitted that Qingdao United Credit had provided business registration materials for some companies to short-selling institutions, "investigated a few companies." However, he was unwilling to discuss the names of these short-selling institutions and companies, denied analyzing and commenting on business registration materials, and also denied conducting field investigations for short-selling institutions.
In fact, Article 9 of the "Regulations on the Inquiry of Enterprise Registration Archive Materials" issued by the State Administration for Industry and Commerce stipulates that "persons making inquiries shall not use the obtained materials to engage in remunerative service activities, nor shall they publish enterprise registration archive materials."
The "Detailed Rules for the Implementation of the Statistics Law" and the "Administrative Measures for Foreign-related Surveys" issued by the National Bureau of Statistics stipulate that market surveys commissioned, funded, or jointly conducted by foreign organizations or individuals, and market surveys that provide survey materials or results to foreign organizations or individuals, are all considered foreign-related surveys.
Through the official website of the National Bureau of Statistics, one can query the list of institutions that have obtained foreign-related survey licenses. However, upon inquiry, Qingdao United Credit is not included in the list.
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