Over 60 Listed Companies Penalized Within 3 Months as Beijing Attempts to Restore Market Confidence

Over 60 Listed Companies Penalized Within 3 Months as Beijing Attempts to Restore Market Confidence
The stock market in Shanghai, China, on June 1, 2023. (Mandy Cheng/AFP/Getty Images)

Following the appointment of a new chairman at the beginning of the year, the China Securities Regulatory Commission (CSRC) has undertaken a major overhaul to restore confidence in the stock market.

This revamp has involved intensive penalties against certain listed companies, brokerages, and individuals. So far this year, more than 60 listed companies have reportedly faced administrative penalties, and 36 have been placed under formal investigation. At the same time, a significant number of company executives have resigned.

Analysts believe that China’s stock market problems are deep-rooted systemic issues that cannot be solved by imposing penalties and will worsen over time.

Over 60 A-Listed Companies Penalized

Since the beginning of 2024, more than 60 A-share listed companies and their executives have received administrative penalties from the securities regulator, an increase of 34 companies from the previous year. According to Chinese media reports, these companies’ issues mainly involve financial fraud, non-compliance with disclosure obligations, delayed reporting in periodic reports, inadequate internal systems, and insider trading.
On Jan. 8, Hangzhou Century Co., Ltd., a company that develops, manufactures, and sells anti-theft security products, was fined 85.7 million yuan (about $11.84 million) by the Zhejiang Securities Regulatory Commission. The then-chairman and general manager were fined 7.5 million yuan (about $1.03 million) and barred from the securities market for 10 years. The penalties reportedly involved fabricating significant false content in public issuance documents and falsifying annual reports.

In early February, Guangdong Huatie Tongda High-speed Railway Equipment Corporation received a penalty notice from the Guangdong Securities Regulatory Commission for engaging in fictitious trading to inflate performance and concealing related transactions for four consecutive years. Chinese media reported the company was fined 26.3 million yuan (about $3.63 million), and its then-chairman was banned from the market for life.

In March, the Shanghai Securities Regulatory Bureau proposed to fine Shanghai Industrial Development Co., Ltd. and its responsible persons a total of 25.45 million yuan (about $3.51 million). The company was suspected of allegedly carrying out illegal activities, including falsifying annual reports, failing to disclose expected operating losses in a timely manner, and delaying the announcement of major contracts. Between 2016 and 2021, the company allegedly inflated its revenue by 4.72 billion yuan (about $652 million) and its total profit by 614 million yuan (about $84.84 million).

Hebei Huijin Group, a company specializing in financial software products and intelligent logistics systems, received a penalty notice from the Hebei Securities Regulatory Commission. The company was fined 2 million yuan (about $276,300) for falsifying its 2021 annual report and failing to disclose significant matters as required, and responsible persons were subjected to disciplinary action.

As of March 26, 36 listed companies have disclosed that they or their actual controllers or senior managers are under investigation. Among these, 10 investigations involve the listed company entities themselves.

Thalys Medical Technology is an early-stage medical intensive service provider in Central China listed on the Shanghai Main Board. As Nvidia CEO Jen-Hsun Huang recently announced that “AI health care” is the next golden track, Thalys has been in the spotlight as a pioneer in China’s AI-driven health care field.

However, on March 25, the company received a notice from the CSRC stating that it was under investigation for suspected violations of information disclosure regulations.

As of March 26, 12 company executives were under investigation for reasons ranging from short-term trading and insider trading to disclosure violations.

Wave of Resignations

Many executives have also been investigated, and most have resigned from lucrative positions.

Several chairpersons and directors have also stepped down from their posts. According to news releases from publicly traded pharmaceutical companies, senior executives from at least four companies announced their resignations last month.

Also in March, 11 executives of listed companies were placed under “retention,” a mandatory measure taken by China’s regulatory authorities during investigations of officials who are derelict in their duties.

CSRC’s Punishments Can’t Save China’s Capital Market

Since Wu Qing, the newly appointed chairman of CSRC, took office in February this year, he has repeatedly stated that he will tighten supervision and impose fines on companies and individuals that have violated laws and regulations to restore people’s confidence in the stock market and improve the image of the capital market.

However, analysts point out that these measures can’t really remedy the situation because they don’t address the root of the problem.

China expert Wang He told the Chinese edition of The Epoch Times that China’s stock market is hopeless due to Chinese Communist Party (CCP) leader Xi Jinping’s rejection of political reform.

“China’s stock market needs fundamental reform, and the basic system needs to be systematically adjusted so that the stock market can truly become a market operation where the fittest survive, and resource allocation is optimized,” he said.

“The first thing to be solved is the problem of state-owned enterprises and parent companies taking over the funds of listed companies. Wu Qing or the CSRC cannot solve this problem. It is a question of whether the Xi administration is willing to do it. If it is, China’s entire interest structure will have to undergo a breakthrough and fundamental adjustment.”

According to Mr. Wang, to address the root of the problem, it is necessary to fundamentally change the CCP’s current economic policies and radically move toward market-oriented reforms. However, Xi is determined to protect the Party’s interests; thus, the expert said it is impossible for Xi to implement any fundamental reforms.

Current political commentator Qin Peng also believes that the problem of the Chinese stock market is a deep-rooted systemic problem that cannot be solved by punishment alone.

In a recent interview with The Epoch Times, Mr. Qin said: “One of the main goals of the Chinese stock market in its early days was to help state-owned enterprises out of poverty. When the state-owned enterprises could not solve their financing problems, the authorities pushed them to the stock market to make money.

“The second goal was to ease the difficulties of state-owned banks. In the past, banks in China lent a huge amount of money to state-owned enterprises, which resulted in many bad loans and bad debts. The authorities have also listed many state-owned banks so that they can raise capital directly from the stock market,” he continued.

At the same time, the third goal has also been achieved: powerful and wealthy families have joined hands to make money from the stock market. Officials have teamed up with the rich and powerful and state-owned enterprises to make laws and regulations to benefit themselves, plundering the wealth of the common folk.”

Mr. Qin believes that the listed companies, including their executives, have all realized that China’s economy is in big trouble, so almost all are handling the situation indifferently. Moreover, he said, they are trying to transfer their capital out of the country before emigrating.

“The CCP is trying to restore a positive image of the capital market. The penalties it now imposes, the so-called strict law enforcement, are meant to continue deceiving small investors. I think it is just a practice to deceive oneself and others,” he said.