China?s cleantech sector could be in for something of a shock as the country?s securities watchdog said it is ready to turn over one particular Chinese company's audit documents to US regulators.
This may the beginning of the end of story that has seen a string of US-listed Chinese cleantech companies accused of accounting frauds, with some also under scrutiny for listing irregularities. To date, however, the US Securities and Exchange Commission (SEC) has been unable to gain access files in China.
Many of the companies concerned are big names in China's cleantech sector and their management will be worrying that their numbers are being turned over to the Americans. While there are dozens of cases pending against Chinese companies, this move will see only one company's files released and it remains unnamed.
There has been fierce resistance in China to turning over documents because of concerns over state-secrets and sovereignty concerns. Many of China?s cleantech companies have their roots in the state-owned sector or have deep lines of credit with local governments and state-owned banks.
The China Securities Regulatory Commission (CSRC) is now ready to transfer audit papers to the SEC and the Public Company Accounting Oversight Board, a CSRC spokesman told Reuters.
For the commercial sector in general the move will be seen as good news, signaling better co-operation between the two countries and restoring some business confidence and support to the capital markets which saw US investors losing billions of dollars due to frauds in 2010 and 2011.
What action might arise from the release of these files remains to be seen but many China cleantech companies and their directors must be worried that more material might follow.
Allegations of fraud have made against quite a few Chinese cleantech companies as their business performance has borne little resemblance to figures supplied in listing documentation. Questions arose over the back-door listing practices that allowed them easy access to the US equity markets.
Chinese companies had been getting an existing US-listed shell company to "acquire" their non-listed business, at which point the target firm's shareholders take control of the combined entity. And this enabled them to go public without any real scrutiny; for example there was no need to provide a year's operating accounts and some of those that were submitted bore no resemblance to reality.
Cleantech companies were particularly attracted to this sort of entry to the US markets. Both of the US equities markets owned by NYSE Euronex - the New York Stock Exchange and the small-cap NYSE Amex Equities market ? have subsequently submitted new standards to the SEC, tightening reverse-merger rules as the scandal developed.
By the middle of 2011, a long list of Chinese companies were being questioned over their auditing practices, with the resignation list of auditors and directors mounting weekly. LDK Solar, Trina Solar, A-Power Energy Generation Systems, Suntech Power and JA Solar Holdings all had accounting problems and some had their US stock exchange listings suspended.
Less well-known green companies were found up to their eyes in dubious practices. Duoyuan Global Water, HQ Sustainable Marine were suspended by the SEC. Other companies that were relegated to the OTC markets from the exchanges included: Rino International Corp; China Integrated Energy; China Agritech; and China Ritar Power.?
Source: http://www.cleanbiz.asia/news/planned-audit-file-release-time-bomb-china-cleantech-sector
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