The Wall Street Journal’s On the Street column on October 15 talks about the US-listed Chinese company Harbin Electric. The article, in our opinion, is superficial, misleading and even irresponsible in that it reviews information on this controversial company in a lopsided way and concludes with what can only be interpreted as a buy recommendation.
China Economic Review and its custom research operation, CER Research, has been following Harbin Electric closely for many months, and we see this case as being a prime example of why third-party research is so desperately needed in the China corporate field.
In the past year, Chinese companies listed in the United States, one after another, have been exposed as lying about or exaggerating their financial data and the scale of their business. China Economic Review Research has been at the forefront of this wave, and has called a number of the companies well before others, including AutoChina, China Biotics and Zhongpin. Not all Chinese companies are bad, of course, but the scale of the problem suggests systemic issues that investors looking at China must take into account to avoid being cheated.
For a reliable view on China companies, investors cannot trust information released by companies themselves, nor can they trust the investment banks who inherently have an interest in pushing the positive side of the story. As for the major international media companies, their reporters are just too busy to do the detailed, painstaking research necessary to reveal the truth.
CER Research does due diligence on companies on behalf of clients, and for general distribution, using the best traditions of international journalism, with time and resources being focused on specific cases to allow for the timely extraction of reliable information on which companies can make trading decisions. The research is independent and not influenced by subjective factors because we take no position in any company being researched. In fact, the entire research team is banned from trading any stocks at all.
China is continuing to grow far faster than any major economy, and Chinese companies will continue to grow strongly relative to their peers elsewhere. International investors have no choice but to address China, and indeed want desperately to have a stake in China growth. But how to do it safely? The answer, by default, is credible, authoritative, trustworthy third-party research.