Chinese listings at US stock markets got recently under fire. Former US assistant trade representative Harry Broadman looks with some amazement at this market at the International Finance Law Review (IFLR). “After decades of working in China intensively on financial accounting, there is not a single state-owned enterprise I’ve worked on that I can think of that abided by international accounting standards,” Broadman says.
The catalyst for the move is likely Luckin Coffee, the fast-growing Chinese coffee chain that created a network of fake employees and customers that enabled it to grossly fabricate its revenues. Only eight months after going public – on Nasdaq’s exchange – the company’s valuation had doubled to $12 billion. News of the doctored numbers caused stock to fall by as much as 75% overnight.
“After decades of working in China intensively on financial accounting, there is not a single state-owned enterprise I’ve worked on that I can think of that abided by international accounting standards,” said Harry Broadman, partner and managing director of the emerging markets practice at Berkeley Research Group. “Some of these firms are now listed on the US markets. I’ve not examined those firms’ recent financial accounts, but even if we were given their upstream numbers, the source and integrity of those numbers has always been, in my mind, very dubious.”
“I am surprised that it has taken this long, just in terms of the sheer due diligence and regulatory integrity check. I wasn’t aware of exactly how many of those Chinese firms were listed on US markets, but I’m actually quite shocked there were that many,” he added, “That’s not a comment about the Chinese, but about US regulators.”
“Anybody who understands how state owned Chinese firms keep accounts, even some of the more privately oriented of them, knows they are just not completely grounded in international accounting standards, like a US firm or a British firm,” he said. “Anyone who thinks that is quite myopic.”
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