Economist Xiaoqiu Wu suggests, "For companies that commit fraud in their listings, they should be dealt a devastating blow, to the extent that they wouldn't dare do it!" How do you view this statement?

The Ecosystem Problem in China’s Stock Market

The idiom “Rome wasn’t built in a day” applies well to the issue of fraudulent listings in the A-share market, which has been an issue for more than just a couple of days.

In the relatively new Science and Technology Innovation Board market, two companies, Purple Crystal Storage and Zeda Yisheng, have already been found to have issues with fraudulent listings.

The case of Jiangsu Shuntian (600287.SH) is even more outrageous, with the company having falsified financial records for 13 consecutive years, from 2009 to 2021. During this period, they reported an inflated total operating income of 10.333 billion yuan, an inflated total operating cost of 9.399 billion yuan, and an inflated total profit of 934 million yuan.

Generally, it’s nearly impossible to continue financial fraud for three years without being detected, but Jiangsu Shuntian managed it for 13 years.

This raises questions from investors: Why can retail investors see problems that professional institutions cannot?

Why do similar events occur frequently in the A-share market?

This actually proves that the A-share market has not yet developed a healthy ecosystem. Over the years, numerous documents have mentioned “ecosystem construction,” but have we fully understood its importance?

What is a stock market ecosystem?

It is essentially a system theory of the stock market. In ancient Chinese terms, it means that all market participants must build a mechanism of “checks and balances.” Simply put, it’s a balance mechanism where “tigers eat chickens, chickens eat insects, insects eat sticks, and sticks beat tigers.”

Has the Chinese stock market formed a mechanism of “market entity checks and balances”?

The gap is significant.

Therefore, the problems of the A-share market are not just isolated issues or something that can be patched up as suggested by investors. They are systemic, ecological problems that require all parties to return to regulated interest mechanisms under the majesty of the rule of law.

Many controversial events in the A-share market are rooted in ecological issues. Under the reform of the registration system, if there is no “supervision-separation” market mechanism, who will be held accountable for fraudulent companies getting listed?

Thus, the urgent need for ecological construction in the A-share market is evident.

The stock market, as a part of the financial market, is of course based on the foundation of reputation and credit.

So, what should be the original role of the stock exchange?

First, it should be the carrier of the market; second, it should be a staunch defender of market reputation and credit.

Due to this role, the stock exchange has an inescapable responsibility to review whether a company meets the listing standards. During the entire review process, the exchange must steadfastly adhere to its original mission of “defending market reputation and credit.”

Historically, the “South Sea Bubble” incident in the British stock market, which involved defrauding investors leading to their financial ruin, resulted in a century-long “silence” in the British stock market. This is an extremely typical and profound lesson.

It shows that whether a stock is in a “bubble” is not simply a matter of high or low prices. The real “bubble,” the one that causes the most damage to the stock market, is the “bubble” caused by fraud-induced price surges.

Under no circumstances should the A-share market experience a situation where companies are blinded by profits. History has proven numerous times that stock price distortions or “bubbles” based on fraud and deception are the most dangerous kind of “bubble.”

The queueing phenomenon in the A-share listing process is rare in the world because there is no cost to trying. “If you succeed, you become a billionaire; if not, you just take your documents back, redo them, and reapply next year.”

Fraudulent listings not only harm investor interests but also disrupt the normal functioning of the capital market.

When companies obtain listing qualifications through false information disclosure, they are essentially plundering the wealth of investors, while also distorting the market price mechanism, leading to resource misallocation and market failure.

The fact that these issues, apparent even to the average investor, still exist, calls for a consideration of deeper underlying reasons…

The Challenge of Addressing Fraudulent Listings in the A-Share Market

The key to delivering a “devastating blow” to fraudulent listings depends largely on the market’s orientation.

If the market is primarily focused on financing, it’s challenging to achieve this. In contrast, if investment is the priority, it becomes more feasible.

The A-share market is essentially finance-oriented, aimed at enabling companies to raise funds for further development, job creation, and to support the real economy.

Thus, for many listed companies, the A-share market represents a boon, a kind of welfare.

Serious scrutiny is difficult because there are always more ways to circumvent difficulties than the difficulties themselves.

Companies often manage to meet all requirements before listing. However, their behavior can change gradually over 2-3 years post-listing, with only the most egregious cases being detected.

Recent penalties have been significant, not just for listed companies but also for securities firms. Yet, many cases undoubtedly remain undetected due to the market’s orientation.

If the A-share market’s focus doesn’t shift significantly towards investment, a lenient approach towards IPOs, private placements, and convertible bonds, among other fundraising activities, will continue.

This means only symbolic punishments and slightly stricter measures are possible, and even these occur mainly in particularly poor market conditions.

If market conditions improve, even these token efforts might cease, potentially leading to an overburdened market. The total market capitalization of the A-share market is inflated by various dubious stocks, suppressing the valuation of quality enterprises and leading to the marginalization and reduced trading volumes of many stocks.

Change in these aspects is beyond the control of ordinary investors.

While there is a continuous call for change, and everyone desires it, the reality is that one must either avoid the A-share market or adapt to it.

The best strategy is to focus on index funds and avoid individual stocks, especially new ones. Of the more than 5,000 listed companies, only a handful are genuinely committed to their business, competitive, willing to pay stable dividends, and engage in buybacks and cancellations.

Most stocks should be excluded from consideration, and investors should protect themselves by focusing on index funds and using only surplus funds, given the market’s nature.

High familiarity with the game does not guarantee finding significant investment opportunities. Therefore, it’s wise to reduce investment proportions and maximize risk awareness.

This is the only viable option for ordinary investors.

If the market continues to favor financing over investors' rights, the number of investors will inevitably decrease.

This will eventually impact IPOs and new stocks, as they need willing buyers. If investing becomes increasingly challenging, who will take on these IPOs?

This could eventually lead to a shift in focus, making some concessions to the investment side.

In the long term, the prosperity of the capital market must be built on the success of investments. When investing becomes profitable, more funds will flow into the A-share market, facilitating financing.

Capital markets are essentially a platform for wealth redistribution. The fear isn’t investors making money, but them not participating at all. Only when investors profit does the capital market thrive in all respects.

The A-share market, being relatively young at about 30 years and reluctant to learn from others, must grow through its own experiences. A significant shift towards investment orientation is unlikely in the short term and may take at least a decade to manifest due to the complexity and magnitude of such a change.

Previously, were fraudulent companies not penalized, or were they just fined three cups of wine?

Was the law lenient in the past, and is it so strict now, with such a broad legal scope?

In a system characterized by arbitrary rule and ever-changing policies, where market regulation swings from day to night, which entrepreneur would have confidence? Which investor would dare to ride this rollercoaster?

Since they dare to fraudulently act so openly, it indicates that they have a powerful background. The ultimate outcome usually involves the person asking questions being destroyed, and then there are no more issues.

I’m quite curious.

Alipay is preventing companies from going public, one after another, purely fraudulent listings to cash out.

What exactly is the meaning behind this?

The fundamental issue is that the management does not manage, and without management, all regulations are ineffective.

You are losing by wetting the bed, while he is profiting like crazy.

It’s a good suggestion, just use your words. However, you should know that touching vested interests is even harder than touching the soul.

Wu Xiaoqiu: Fraudulent Listed Companies Should Face Devastating Punishment

On January 18th, at the 13th China Capital Annual Conference, renowned financial economist and Dean of the National School of Finance at Renmin University of China, Wu Xiaoqiu, stated that disclosing false information is a severe crime because it misleads society, the market, and investors. The phenomenon of queuing during the listing process in China is rare worldwide because there is no cost to attempting to go public. “If you succeed, you become a billionaire; if you fail, you take the materials back and try again next year.” He suggested that companies engaged in fraudulent listings should face devastating punishment, not just fines, to deter deceivers with the full force of the law, making them think twice.

I only hope that the interests of retail investors can be taken into account. Don’t just confiscate, but return the money to retail investors.

This suggestion is very well-made. The registration system has made it easier for some companies to go public, but it has also led to some low-quality companies trying to list for fundraising, which can easily lead to a situation where bad money drives out good money. Only by implementing strict laws and penalties can we deter fraudsters.

Why are there so many companies waiting in line to go public now? It’s because the punishment for fraudulent listings in the past has been too lenient, which has led some people to have a sense of impunity.

It is necessary to delist, fine, compensate for investor losses, and imprison those who engage in fraudulent listings. Only in this way can there be a deterrent effect.

This is the way it should be. As it should be.

No chance, Shun Tian is right next door to us.

In China, the current version is popular and in line with the prevailing trend.

Luckin Coffee, the company that committed fraud, is still operating smoothly. Investors and consumers are not always on the same side.

Saw no new rookies, started to roll out bullish endorsements.

It means subtly criticizing the unprofessionalism of some opening remarks.

However, the opinions of economists are just for listening, like a passing fart.

If this is really done, it’s no longer a matter of online trolls or naval battles between Huawei and Xiaomi.

Instead, competitors can perform magic tricks or slaughter, and publicly traded companies can suffocate to death due to the economic plans of economists. Because now, some small and micro enterprises are collapsing due to the technical execution of economic cases.

When launching the registration system without proper implementation, it’s now saying

Too late

Let them cut off their own financial path?

A gang. Their purpose is just to cut the old leek. Setting aside the talk of various so-called rectifications, it’s all empty talk.

Just take a look, don’t take it seriously.

Everyone understands the principle, but you can never wake up someone pretending to sleep…