Another Sales Bubble Suspicion Bursts... Growing Wariness of Chinese Companies

[Asia Economy Beijing=Special Correspondent Park Sun-mi] Suspicion of 'revenue inflation' targeting Chinese companies listed on the US stock market is continuously emerging, increasing wariness toward Chinese companies.

On the 9th, China's Global Times reported that Chinese companies listed on the US stock market are facing short-selling attacks amid ongoing allegations of revenue inflation. It also mentioned concerns that this atmosphere could make fundraising difficult not only for other Chinese companies listed on the US stock market but also for Chinese companies preparing for initial public offerings (IPOs).

Currently, Chinese companies embroiled in accounting fraud allegations on the US stock market include 'China's Starbucks' Luckin Coffee, Chinese video streaming platform iQIYI, and China's largest education company Haowei Lai (TAL Education). Luckin Coffee admitted that its revenue for the second to fourth quarters of last year was inflated by approximately 2.2 billion yuan (about 380 billion KRW) following a disclosure by Muddy Waters, a research firm famous for exposing listed companies, resulting in its stock price plummeting by more than 80%.

Recently, another research firm, Wolfpack, joined the attack on Chinese companies. In a 37-page report released on the 7th, Wolfpack Research claimed that iQIYI inflated its revenue by about 13 billion yuan (approximately 2.243 trillion KRW) last year. Wolfpack Research also revealed that iQIYI overstated its current subscriber base by 42-60% and stated that it has taken a short position on iQIYI. On the day of Wolfpack Research's disclosure, iQIYI's stock price temporarily plunged 14% and closed down 4.57% as of the 8th. iQIYI dismissed the allegations, stating, "The contents mentioned in the third party's report do not correspond to the facts," denying Wolfpack Research's claims.

TAL Education reported on the night of the 7th that it had discovered revenue inflation on its own. The company did not disclose the specific amount of inflated revenue but stated that during a regular internal accounting audit, an employee was found to have forged contracts to inflate revenue. The company's stock price fell more than 6% on the 8th (local time).

Due to distrust toward Chinese companies, concerns are rising that overseas IPOs of Chinese companies may be adversely affected in the future. Chen Junde, manager of a Guangdong-based fund investment, expressed, "Short-sellers related to Chinese companies could deal a blow to prospective IPO companies preparing to raise funds in overseas stock markets. Their listings may become more difficult."

This content was produced with the assistance of AI translation services.