In recent years, against the backdrop of increasing downward economic pressure, many A-share listed companies have taken risks, attempting to embellish their performance through financial fraud. One such company is the state-owned enterprise under the CCP, Datang Gaohong Network Co., Ltd. (*ST Gaohong), which has been found to have fabricated trade transactions for 9 years and artificially inflated revenue by nearly 20 billion RMB, constituting a typical case of fraudulent issuance. Recently, it was fined 160 million RMB by regulatory authorities and the delisting process was initiated.
According to the announcement by the China Securities Regulatory Commission, Datang Telecom Group-controlled *ST Gaohong Data Communication Technology Co., Ltd. accumulated approximately 19.8 billion RMB in fake operating income from 2015 to 2023 through a sophisticated fraudulent system, with a total inflated profit exceeding 76.2 million RMB.
The fraudulent practices of the company were extremely covert: conducting fictitious trade transactions without actual business substance through subsidiaries involving IT products such as laptops and servers. The entire operation chain included circular fund flows, forged contracts, and logistics documents, but in reality, there was no actual transfer of goods, merely existing on paper.
What’s even more insidious is that during the private placement of stocks in 2020, *ST Gaohong deliberately cited false financial data from 2018 to 2020, constituting a typical case of fraudulent issuance that severely harmed the legitimate rights of investors.
As stated in the “Pre-penalty Notice,” the China Securities Regulatory Commission will impose strict penalties on the perpetrators of the fraud: a fine of 135 million RMB for *ST Gaohong, a fine of 7.5 million RMB and a 10-year ban on securities market entry for Chairman Fu Jinglin, a fine of 6 million RMB and a 5-year ban for the former CFO Ding Mingfeng, fines ranging from 750,000 RMB to 5 million RMB for other relevant individuals, and a fine of 7 million RMB and a 10-year ban for the third-party collaborator Jiang Qing.
Being a listed company controlled by the central enterprise Datang Telecom Group, the fraudulent behavior of *ST Gaohong has not only seriously damaged the interests of investors but also dealt a devastating blow to its own development. Due to nine consecutive years of financial fraud and fraudulent issuance, the company has crossed into the realm of major illegal activities requiring mandatory delisting, and the Shenzhen Stock Exchange will initiate the delisting process.
Data shows that *ST Gaohong’s performance in 2024 deteriorated sharply: operating income plummeted by 75.31% year-on-year, with a net profit loss of 2.29 billion RMB, expanding by 47.21% year-on-year, a stark contrast to its previous financial reports.
The *ST Gaohong case is not an isolated incident, reflecting the severity of the current issue of financial fraud in the A-share market. Against the backdrop of increasing downward economic pressure, many A-share listed companies are taking risks, attempting to embellish their performance through fraudulent means.
Statistical data shows that in just 2024, the China Securities Regulatory Commission imposed administrative penalties on 61 cases of financial fraud, a 17% increase year-on-year, reaching a historic high.
Since the beginning of this year, several listed companies have been exposed for financial fraud cases, including notable state-owned enterprises.
On July 28, Fuzhou Dahua Intelligent Technology Co., Ltd. was again under investigation. The company was previously found to have undisclosed major contracts and related-party transactions, artificially inflating profits by nearly 30 million RMB, leading to adjustments in 12 financial reports.
On July 21, Fujian Zitian Media Technology Co., Ltd. faced the issuance of delisting risk warning due to false entries in financial accounting reports.
On July 4, two vice presidents of Jinzhou Port, a state-owned enterprise under the Jinzhou State-owned Assets Supervision and Administration Commission, were arrested by the court for financial fraud, putting this veteran port enterprise on the brink of delisting.
On March 28, three companies from the “Dongxu Group” were suspected of falsely inflating income by a staggering total of 47.825 billion RMB from 2015 to 2019.
On January 23, Tianjin Zhuolang Information Technology Co., Ltd. became the first A-share company to be delisted in 2025 due to financial fraud.
Regarding the rampant phenomenon of state-owned enterprises engaging in mass fraud, Associate Professor Sun Guoxiang from the Department of International Affairs and Business at Nanhua University in Taiwan previously told Dajiyuan: “Large-scale financial fraud can trigger systemic risks in the financial market.”
Sun Guoxiang’s analysis points out that state-owned banks prefer to lend to well-performing state-owned enterprises, but if the financial data of these enterprises are falsified, it will lead to significant deviations in the entire resource allocation system. This could cause a credit crisis in state-owned enterprises, reduce the trust of investors and financial institutions in the market, leading to market turbulence, and even triggering stock market panics.