Fitch said the issue has tarnished the Chinese company. Such issues may take some time to be resolved. This is in connection with the emergence of financial reporting by corporate scandals in China.
This is revealed in the agency's report on corporate governance in China released in Beijing on Monday (18 / 7).
Fitch said the China corporate financial reporting categories can be said to belong to an element of risk and fraud. "Some of the allegations will be proven," Fitch said in a statement.
Fitch stated, it takes a long time to eliminate the negative impression like that. China corporate financial reporting conditions are bad bercitra also become an obstacle so that they can not access the capital markets with ease. The situation will become more difficult if there are other bad things, such as the decline in investor confidence.
However, this kind of thing does not just dominate the Chinese company. Companies from the U.S. and Europe is also loaded with financial fraud scandal. This was evidenced by the many companies fell as the U.S. economic crisis erupted in 2008.
Fitch conducted a study on corporate governance by analyzing 40 Chinese companies that originated from China. Agency states, many weak points in Chinese companies. This, for instance, seen from the use of Chinese accounting standards, the selection of auditors, listing of shares on the Shanghai Stock Exchange that are not "wrong", and the concentration of stock ownership.
The report also looked at the amount of financial companies, such as revenue growth, working capital, taxes, and profit margins, which are considered not appropriate.
Fitch noted corporate governance in China is underdeveloped and unable to follow the international standards.
The company rating agency also stated, there are weaknesses regarding the independence of company directors. In many companies, directors chaired by the same people for years without any rotation.
"International investors are attracted to many Chinese companies. This was driven by high growth rates and yields. Unfortunately, the company is still low in China meet international standards, "says John Hatton, Group Credit Officer for companies in the Asia-Pacific.
Fitch also said he studied 40 Chinese companies are rated BB and below. BB rating means the company's credit quality is low.
While ratings for state-owned enterprises and companies that supported the state has ranked at the level of investment worth and rank on it, or better than private companies.
The second rating agency Fitch is a company that examines the risks of investing in companies that originated from mainland China. Previously, another rating agency, Moody's Investors Service last week warned about the risks of financial reporting and governance of Chinese companies.
Stop trading
Chinese companies listed on overseas exchanges lately become the target of criticism for doing a variety of fraud such as occurred in the U.S. and Canadian exchanges.
"Investors are also urged Chinese companies to follow international standards even higher in the preparation of financial statements," said Hatton.
More than 150 Chinese companies, with total assets worth over 12.8 billion U.S. dollars, entered the U.S. capital markets through mergers since 2007. There are only 50 companies that go through an IPO to the public based on data from the Public Company Accounting Oversight Board (PCAOB).
Chinese Reverse Mergers Bloomberg index of 78 stocks to follow the development of Chinese companies that listed its shares in the U.S. states, the company's shares slumped 44 percent this year.
PCAOB and U.S. Capital Market Supervisory Agency (Securities and Exchange Commission / SEC) last month confirmed will send an envoy to talk with Chinese authorities regarding the auditor based in China. The SEC suspended trading in shares of a company from China because it is considered using the double bookkeeping or failed to disclose who the company's auditor.
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