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Monday, 27 August, 2001, 11:46 GMT 12:46 UK
China's share fraud crackdown
Shanghai skyline from the Pudong business district
Pudong district: The home of Shanghai's stock market
China has pledged to step up its crackdown on companies that mislead investors and publish false accounts.

The finance ministry has ordered checks on the accounts of listed companies after a tour operator admitted reporting 128m yuan ($15.47m) of non-existant profits over a three-year period.

China's stock markets are dominated by a get-rich-quick outlook and volatile trading which tends to focus on short term price movements rather than corporate fundamentals.

The finance's minstry's circular is part of its bid to introduce better corporate governance and steadier markets.

Market panic

China's stock markets have lost 18% of their value since June, when the regulator began an investigation into companies' illegal use of bank loans to buy shares.

Ex-Hong Kong stock market chairman Anthony Neoh
Ex-Hong Kong stock market chairman Anthony Neoh is part of the clean-up team
Now, the pace of new share sales will be slowed down to allow better checking to take place, according to a senior government advisor.

Anthony Neoh, the ex-chairman of Hong Kong's Securities and Futures Commission, now advises the mainland's regulators on stock market reform.

Widespread fraud

He said: "The approval process on share sales will be tightened."

Half of 56 companies that issued shares on the Shenzhen Stock Exchange misled shareholders, the regulator has found.

They advertised new shares to raise funds to expand their businesses, then ploughed the money into stock market speculation, according to the China Security Regulatory Commission.

Outside influences

When China joins the World Trade Organisation, foreign stock brokers will be able to do business on the Shanghai and Shenzhen exchanges

Shanghai stock trader sleeps in a rare quiet part of the day
A rare moment in a Shanghai trading day
Government reformers hope opening up the financial services sector will generate pressure to meet international standards.

Meanwhile, the finance ministry has ordered a check on whether companies are implementing the Accounting Law.

These are needed "to seriously investigate and punish those listed companies that have falsified accounting information and lied to investors," it said in a statement.

See also:

07 Aug 01 | Business
China stocks reel as rulers disagree
19 Feb 01 | Business
China reforms stock market
08 Aug 01 | Business
Sinopec shares stall on debut
01 Mar 01 | Business
China's stocks near record
24 Apr 01 | Business
China's exchange gets tough
18 Jun 01 | Business
China targets currency smugglers
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