Companies Join Short Seller Counter-Attack 中国企业对做空机构发起反攻
The credibility crisis plaguing US-listed Chinese firms took a twist last week when first a group of Internet leaders and then another group of company executives launched attacks on the short sellers who sparked the crisis last year. While many of the earliest short seller attacks were based on real issues related to dubious accounting practices, the Chinese groups last week argued the recent attacks that have prolonged the crisis are unfounded and little more than ploys to earn fast money.
This counter offensive is exactly the kind of move that Chinese companies need to do more as they seek a place on the global stage. Otherwise, they run the risk of perpetually being on the defensive, a naturally weaker position, as they respond to attacks from their Western rivals.
The confidence crisis that has dogged Chinese stocks for more than a year began in spring 2011 when short sellers questioned the accounting of companies like Sino-Forest and Longtop Financial, causing their shares to plummet. Those attacks were followed by a steady series of similar ones aimed at a wide range of companies, including cellphone chip maker Spreadtrum (Nasdaq: SPRD), advertising specialist Focus Media (Nasdaq: FMCN) and security software maker Qihoo (NYSE: QIHU).
The attacks not only hurt individual companies, but also sparked a confidence crisis that wiped out billions of dollars in market value for the broader field of US-listed Chinese companies as their shares plummeted. Many observers agreed that the earliest attacks, mounted by short sellers including Muddy Waters and Citron, exposed real problems with the accounting of the companies under fire. But as more time passed, many of the most recent attacks have appeared increasingly opportunistic, with short sellers simply seizing on investor fears to make quick profits.
While individual companies responded with strong denials after each attack, the broader field of overseas listed Chinese firms has remained largely quiet throughout the crisis. All that changed last week when Lee Kai-Fu, the former head of Google China, launched his own counter offensive against the short sellers. (previous post) In a letter signed by dozens of other Chinese Internet leaders, Lee accused the short sellers of unfairly hurting many innocent Chinese companies with their repeated assaults.
Following Lee’s lead, Spreadtrum’s co-founder Chen Datong revealed that several companies like his own, which came under attacks that later turned out to be groundless, are preparing to sue the short sellers for causing their shares to tumble by spreading false information. (Chinese article) This kind of offensive action is a refreshing change from globally active Chinese firms, which too often assume a defensive, reactionary posture when they become the victims of foreign bullying.
Foreign companies are masters at the offensive game plan because they know the global market is a highly competitive place where a superstar today can easily become a victim tomorrow. Chinese companies need to learn this lesson as well and become more proactive at protecting and promoting their businesses abroad, or risk being sidelined or worse by their aggressive foreign rivals.
Bottom line: The latest counter-attack by Chinese against short sellers of their stocks could help to wrap up the current confidence crisis by the end of this year.
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