By reporter Feng Wu from Qingdao - The cries of slaughter and rivers of blood flowed. In 2011, Chinese concept stocks were repeatedly attacked in overseas securities markets. Who are the killers? Who is supplying bullets to the "air force"? And who is acting as their vanguard?
Due to continuous reports issued by foreign investigation platforms such as Muddy Waters, Citron Research, and Alfred Little that primarily targeted Chinese concept stocks, many NASDAQ-listed Chinese companies suffered significant stock price declines and heavy losses. In this "feast" of shorting Chinese concept stocks, a chain of interests gradually emerged, from the production of investigation reports by investigation agencies, optimization on Baidu, to profiting by short sellers.
According to investigations by the reporter from "The Economic Information Daily", apart from foreign investigation agencies profiting through short selling, a company named "Qingdao Lianxin Business Consulting Co., Ltd." (hereinafter referred to as Qingdao Lianxin) once cooperated with short-selling institutions, providing them with paid access to some enterprises' business registration information, becoming a critical link in the entire short-selling chain.
In an interview with "The Economic Information Daily", Li Chunyang, chairman of Qingdao Lianxin, said that they only investigated "a few companies" and "the businesses we cooperate with are all small-scale, not our main business."
However, according to staff at Qingdao Lianxin, the "Corporate Credit Report Production and Credit Investigation" service provided by the company, based on official business registration information, has been openly priced: for each company investigated, Qingdao Lianxin charges a minimum fee of only 1,000 yuan.
Battle of Short Selling Chinese Concept Stocks
In June 2010, the 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 in half a year, it dropped by 32.89%.
Following Muddy Waters, Citron Research and Alfred Little also became familiar to investors. They respectively issued reports questioning companies like China Valves Technology, TF 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, publishing reports to hit their stock prices, and eventually profiting from it has become a shortcut well known to investigation companies and individuals who have purchased short positions in Chinese concept stocks. Analyst Feng Po from the China Venture Capital Group pointed out, "Muddy Waters shorts Gaosu Channel, first borrowing some stocks, then selling them. When the stock falls to a certain extent, they buy back to cover, making money through the price difference."
However, how do overseas civilian investigation agencies and even individuals manage to produce dozens of pages long, convincing investigation reports targeting Chinese concept stock companies across the ocean?
As media attention increased, domestic consulting companies began to appear in the ranks of short sellers.
For example, media reports claimed that John Bird's attack on Tianyi Pharmaceutical relied on business registration information provided by Qingdao Lianxin; media reports also pointed out that in the case of Muddy Waters shorting China MediaExpress, Muddy Waters compared the financial data in the business registration information with the financial report submitted to the U.S. Securities and Exchange Commission (SEC), finding discrepancies and raising questions about China MediaExpress's "exaggerated revenue and profit illusion"; another report stated that after John Bird "hunted" Tianyi Pharmaceutical, Muddy Waters and other companies repeatedly purchased business registration information provided by Qingdao Lianxin.
What exactly are the capabilities of this "Qingdao Lianxin" company, and how does it cooperate with short-selling institutions?
Investigation starts at a minimum of one thousand yuan
According to the reporter's investigation, Qingdao Lianxin's current business scope includes enterprise management consulting, financial management consulting, market research, development and maintenance of software and networks, credit card payment reminder services, and personal payment reminder services commissioned by banks (business cannot be conducted without signing the "Agency Agreement").
In Qingdao Lianxin's numerous job advertisements, it is shown that they conduct "accounts receivable management and collection and sale of bad debts," and they are members of the "American Collection Association (ACA)" and the "International Creditors Association (CI)." How did the "payment reminder service" in the business scope turn into "collection service"?
Among the businesses conducted by Qingdao Lianxin, there is also "Corporate Credit Report Production and Credit Investigation." Regarding the specific content of this business, the reporter anonymously consulted a staff member of Qingdao Lianxin, who immediately asked: "Do you want to investigate foreign companies or domestic companies?"
The aforementioned staff member introduced that "Corporate Credit Report Production and Credit Investigation" involves verifying the background of corporate credit based on official business registration information (including registration information, financial information, etc.) and producing a "Corporate Credit Report" to feedback to clients.
For investigations targeting domestic companies, the investigation fee is "1,000 RMB per report"; for investigations targeting "U.S. companies," the investigation fee is "1,000 to 1,200 RMB"; the presentation form of credit investigation is the "Corporate Credit Report."
This staff member also told the reporter that although Qingdao Lianxin generally does not conduct field surveys, as long as the fees can be borne, Qingdao Lianxin can arrange lawyers to conduct field investigations. Such services are relatively expensive, "mainly lawyer fees, charged by the hour, plus reimbursement of round-trip airfare for the lawyer. Lawyer fees are several hundred RMB per hour, and airfare is reimbursed according to invoices."
According to reports, Qingdao Lianxin's official website information also shows that it can create "Corporate Investment Depth Reports" for customers, which include public information, official information, "interviews" with related parties to obtain information, detailed financial analysis, etc. However, when the reporter checked, the official website is currently unable to open. A Qingdao Lianxin staff member said it is "under maintenance."
Qingdao Lianxin's "Investigation" Services
"The Economic Information Daily" reporters learned that the major shareholder, legal representative, and general manager of Qingdao Lianxin is Li Chunyang. In 1997, at the age of 24, Li Chunyang resigned from a trading company and co-founded Qingdao Lianxin with his former colleague Mr. Jiang and another shareholder surnamed Wang.
When Qingdao Lianxin was established, Li Chunyang contributed 35,000 yuan, Mr. Jiang contributed 30,000 yuan, and Mr. Wang contributed 35,000 yuan. The company's business scope included market research, business intermediation, 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 6 million yuan. Of the three founders, Mr. Wang and Mr. Jiang transferred their shares and left the company. Currently, Li Chunyang and ten other new shareholders hold shares in the company, with Li Chunyang holding more than 80% of the shares.
On the afternoon of February 3, "The Economic Information Daily" reporter made contact with Qingdao Lianxin, but they refused to meet with the reporter. The reporter went to the company's headquarters through Qingdao Lianxin's publicly available address, located on the 23rd floor of a commercial building on Zhongshan Road in Qingdao.
There is only a door number outside the office, with no company logo. It looks similar to an ordinary residential unit. After entering the room, the reporter found that the room is about 30 square meters, with four or five employees working on computers, but they were unwilling to communicate with the reporter.
This seemingly ordinary company, according to its recruitment information, has already set up branches in twelve cities across the country, with over 200 employees, and its business has expanded to more than 200 countries and regions.
Regarding the cooperation with short-selling institutions, Li Chunyang did not deny it. He admitted that Qingdao Lianxin had provided some companies' business registration information to short-selling institutions, "investigating a few companies." However, he was unwilling to discuss the names of these short-selling institutions and companies, denying any analysis or comments on the business registration information and also denying conducting field investigations for short-selling institutions.
In fact, Article Nine of the "Methods for Querying Enterprise Registration Archive Materials" issued by the State Administration for Industry and Commerce stipulates that "Queryers may not use obtained materials for paid service activities, nor may they publish enterprise registration archive materials."
The "Detailed Rules for Implementation of the Statistics Law" and the "Administrative Measures for Overseas Investigations" issued by the National Bureau of Statistics stipulate that market investigations commissioned, funded, or conducted in cooperation with overseas organizations or individuals, and the provision of investigation materials and results to overseas organizations or individuals, are all considered overseas investigations.
Through the official website of the National Bureau of Statistics, one can query the list of institutions that have obtained permits for overseas investigations. However, upon checking, Qingdao Lianxin is not included on this list.
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