Though the Chinese economy is now the second-largest in the
world, it is fair to say that, overall, the development of
corporate governance has not kept pace with the speed of
economic growth. As a result, new instances of financial fraud
by Chinese public companies are being identified all the time.
Corporate governance is now one of the most critical issues
affecting Chinese companies facing increasing international
Weak governance of group companies can cause serious and
lasting damage to the entire group. If fraudulent activity is
identified, a company may have to delay publishing its results,
restate historical reported earnings, or face significant
regulatory penalties or lawsuits from different stakeholders.
Such companies’ stock prices are also likely to
drop significantly, and in the worst-case scenario, the company
could be forced to delist, or may even face solvency
Once potential fraud is identified, a company must often