On the eve of the May Day holiday, several Chinese listed companies announced that their company executives were under investigation, including experts who receive special subsidies from the Chinese State Council. Within just over a month, 10 chairpersons of A-share listed companies, including an 80-year-old academic chairperson, have been investigated. The intense crackdown on a large number of corporate executives by the China Securities Regulatory Commission has sparked various speculations.
On the evening of April 30th, multiple listed companies in the Shanghai and Shenzhen stock markets issued announcements stating that their company executives were under investigation. Guizhou Province Transportation Planning and Survey Design Research Institute Co., Ltd. (referred to as Survey Design Co.) announced that on April 30, 2024, they received a notice from the family of the company’s chairperson, Zhang Lin, that day for detention and investigation by the Guiyang Municipal Supervisory Committee.
Ningbo Joy Smart Mobility Technology Corporation announced that they received a notice from one of the controlling shareholders, Luo Yinhao’s family, stating that Luo Yinhao had been taken into compulsory measures by the Qingdao Public Security Bureau, with further investigation pending.
Precision machinery manufacturer Henrun Co., Ltd. announced that former chairman and second-largest shareholder Cheng Lixin received a notice of investigation from the China Securities Regulatory Commission for market manipulation and insider trading.
Water purification company Liantai Environmental Protection announced that the company and one of the actual controlling persons, Huang Wanru, received a notice of investigation from the Securities Regulatory Commission for illegal information disclosure under asymmetric information conditions.
China Nuclear Titanium White announced that the actual controlling person, Wang Zelong, received an “Administrative Penalty Decision” from the Securities Regulatory Commission, confiscating a total of 60.64 million yuan of illegal gains and fining Wang Zelong 72.5 million yuan for violating restrictive provisions on stock transfers and illegal information disclosure. Wang Zelong was investigated by the China Securities Regulatory Commission for suspected violations of restrictive provisions on transferring non-publicly issued shares of China Nuclear Titanium White in 2023 and illegal information disclosure.
Furthermore, Yuanda Intelligence announced that on April 30, they received a notice of investigation from the Securities Regulatory Commission for suspected illegal information disclosure violations.
Among the investigated companies, Zhang Lin, the chairman of Survey Design Co., is a national-level expert in China. Since April 2010, when he became chairman of the company, Zhang Lin has been a core member of the company, serving as an engineering researcher, first-class construction engineer, core expert in Guizhou Province, recipient of special subsidies from the Chinese State Council, and recipient of special subsidies from the Guizhou Provincial Government.
Recently, Survey Design Co. has seen a downward trend in performance, with operating income of approximately 2.021 billion yuan in 2023, a decrease of 6.25% from the same period last year. Due to inaccurate information disclosure in the 2022 annual report and 2023 half-year report, Survey Design Co. received an “Administrative Supervision Measures Decision,” was ordered to correct its practices, and was included in the securities and futures market integrity files. Zhang Lin, along with Zhang Xiaohang as the general manager and Li Yinghong as the financial officer, were subjected to regulatory talks.
Luo Yinhao, one of the actual controllers of Joy Smart Mobility, being investigated for the second time. Born in 1986, Luo Yinhao was appointed as the chairman of Joy Smart Mobility on July 7, 2022. However, two months later, on September 9, Luo Yinhao was taken into compulsory measures by the Yinzhou Sub-Bureau of the Ningbo Public Security Bureau and resigned from all positions in the company on the same day. However, in October 2023, the Ningbo Public Security Bureau, finding no evidence of criminal activity, decided to close the case and release Luo Yinhao from bail pending trial. It is worth mentioning that Luo Yinhao’s father, Luo Zhiqiang, is the actual controller of Joy Smart Mobility.
“Detention” means that the persons involved must cooperate with the investigation at designated locations with certain restrictions on activities during the period. According to information, within just over a month, a wave of detentions has swept through China’s capital market, with 10 chairpersons of A-share listed companies being detained for investigation.
Incomplete statistics from Prism Insight show that since 2020, 54 A-share listed companies’ senior executives have been detained, with nearly 74% of the cases occurring in the past year. Particularly severe cases involve chairpersons or actual controllers being detained, accounting for an alarming 84% in the past year. Just in the year 2024 so far, 14 listed company chairpersons have been detained for suspected bribery, misconduct, and other charges.
From an industry perspective, environmental protection, computer software, and pharmaceutical industries have become hotspots for detentions. Geographically, listed companies in Guangdong, Beijing, and Anhui have been more involved. It is noteworthy that privately-owned enterprises make up a significant portion of detained listed companies.
Additionally, according to statistics from a financial publication, since 2023, at least 78 chairpersons or actual controllers of 72 A-share listed companies have faced investigation for reasons including irregular information disclosure, insider trading, and market manipulation. More than half of the cases involve suspected information disclosure issues.
On the evening of April 19, Scientific Shuguang Corporation announced that the chairman, Li Guojie, received a notice of investigation from the China Securities Regulatory Commission for suspected short-term trading of Scientific Shuguang stocks that day.
Short-term trading refers to acts where the party concerned buys or sells listed company stocks within a statutory period of six months to seek illegitimate gains.
According to the annual report of Scientific Shuguang, Li Guojie, aged 80, is a researcher at the Institute of Computing of the Chinese Academy of Sciences, a member of the Chinese Academy of Engineering, and the chairman. Furthermore, Li Guojie’s spouse, Zhang Tihua, engaged in short-term trading of company stocks through centralized bidding trading from March 3, 2023, to March 14, 2024.
The recent intensive investigation of several company executives within a short period has aroused various speculations. Interface News quoted industry lawyers as saying that the detention of actual controllers or senior executives of listed companies is often related to anti-corruption actions in various industries or regions, and some bosses, facing growing performance and financial pressures, have engaged in illegal activities that have led to investigations.
Commentator Tang Jingyuan told Dajiyuan on May 4th, “Xi Jinping currently has no solution to the economic crisis in China. He needs to shift the focus by combating corruption and also needs to recover some funds. This may be the reason why the authorities chose to make a concentrated announcement before the May Day holiday—to create an atmosphere of deterrence without triggering a panic effect, mainly because the holiday can dilute public opinion responses.”
Former Beijing lawyer and Chairman of the Canadian Alliance Lai Jianping told Dajiyuan on May 4th, “The Communist Party is scheduled to hold the Third Plenum in July to set economic policies. Now, the China Securities Regulatory Commission has intervened to handle a batch of so-called illegal bosses for two main purposes: firstly, due to the political backtracking by the Communist Party, leading to a rapid decline in the entire Chinese economy, private enterprises lying flat, foreign capital withdrawing, and the stock market hitting new lows continuously. At this time, the Communist Party is truly anxious, so the China Securities Regulatory Commission is rectifying the stock market, mainly shifting the blame to so-called illegal corporate executives; secondly, the authorities want to show the outside world that they are regulating the market in accordance with the law and regulations, creating an image of adhering to the so-called policy of reform and opening up, hoping to restore confidence in the Chinese economy for private and foreign enterprises.”
This translation is a comprehensive rewrite of a news article concerning investigations into several high-ranking executives at Chinese listed companies. The investigations, initiated by the China Securities Regulatory Commission, have raised suspicions and concerns within the business community. The investigations encompass alleged market manipulation, insider trading, and illegal information disclosure, among other infractions. The significant number of executives under scrutiny has sparked speculations regarding potential corruption crackdowns and economic policies. The various industry and regional implications of these investigations underscore the broader impact on China’s financial landscape.