China Business Digest: Luckin Confirms $300 Million Sales Reporting Fraud, Pinduoduo Names New Chief as Founder Steps Down
Luckin Coffee completes months-long internal probe confirming its massive financial reporting fraud. Pinduoduo’s founder steps down from daily management. China’s Foreign Ministry says travel with Europe will resume in an orderly manner. China and U.S. exchange tit-for-tat measures on media access. Meantime, the U.S. formally labels Huawei and ZTE as national security threats.
—By Timmy Shen (firstname.lastname@example.org) and Han Wei (email@example.com)
** TOP STORIES OF THE DAY
Luckin’s internal probe confirms $300 million sales reporting fraud
Luckin Coffee’s months-long independent internal probe confirmed that its reported 2019 sales were inflated by 2.12 billion yuan ($300 million). The company’s 2019 expenses were exaggerated by 1.34 billion yuan, investigators found. The fraud began in April 2019, a month before Luckin’s initial public offering in the U.S.
Pinduoduo founder steps down as chief executive
Colin Huang Zheng, the founder of China’s high-flying e-commerce upstart Pinduoduo Inc., is stepping down as chief executive officer to focus on the company’s long-term strategy. Pinduoduo named Chief Technology Officer Chen Lei to succeed Huang as CEO. Huang also reduced his personal holding in the company by nearly 14% but will remain controlling shareholder of the company with 80% of the voting power.
China, U.S. escalate media access clash
China ordered that four American media outlets to disclose details about their operations on the Chinese mainland in a continuing tit-for-tat exchange with the U.S. on media access. The outlets, including the Associated Press, United Press International, National Public Radio and CBS, must report details on staffing, finances and real estate holdings within seven days, China’s Foreign Ministry said. The move followed the Trump administration’s action June 22 to restrict four Chinese media outlets by labeling them "foreign missions."
China will resume travel with Europe in an orderly way, Foreign Ministry says
China will work to resume travel with Europe in a gradual and orderly manner through appropriate means under the precondition of safety, Zhao Lijian, the spokesman of China’s Foreign Ministry, said Wednesday in a regular briefing. Zhao was responding to a question about when China would lift its travel ban for European citizens.
The European Union Tuesday listed China among more than a dozen countries that can be exempt from the pandemic-era travel ban. But the EU said travel restrictions for Chinese residents will be lifted only on the condition that Beijing confirms equivalent treatment for EU citizens.
Caixin China manufacturing PMI rises to six-month high as demand rebounds
The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), which gives an independent snapshot of the country’s manufacturing sector, rose to a six-month high of 51.2 from 50.7 in May, a report released Wednesday showed. A number above 50 signals an expansion in activity, while a reading below that indicates a contraction.
U.S. labels Huawei and ZTE as national security threats
The Federal Communications Commission has determined that Chinese telecoms giants Huawei Technologies Co. Ltd. and ZTE Corp. pose a national security threat, and thus will not allow their equipment to be used in any government-subsidized networks, it said in a Tuesday statement.
India’s ban on Chinese apps may violate WTO rules, Chinese embassy says
India’s move to ban 59 mobile apps developed by Chinese companies is discriminatory and may violate the rules of the World Trade Organization, said Ji Rong, a spokesperson for the Chinese embassy in New Delhi, adding that China is seriously concerned with and firmly opposed to such action.
Hong Kong national security law could see violators sentenced to life imprisonment
Details of the national security law for Hong Kong revealed that offenders could be sentenced to as much as life imprisonment, according to the full text of the law released by the state-run Xinhua News Agency.
Livestreaming industry standards unveiled
The China Advertising Association, an industry organization, on Wednesday enacted a set of standards for livestream marketing, urging companies and influencers not to fake traffic or distribute false information.
Explained: Why China plans to pilot a policy to grant commercial banks securities licenses
China’s regulators are planning a trial that could tear down the wall separating banks and securities companies, 25 years after the barrier was first put up to control the spread of risk between different parts of the financial system. Caixin reported earlier this week that at least two large state-owned commercial banks are likely to be granted securities licenses by regulators to test the waters. (Read our in-depth story here.)
** OTHER STORIES MAKING THE HEADLINES
Finance & Economy
• China’s central bank is separately cutting rediscount and relending rates by 25 basis points, or a quarter of a percentage point, starting Wednesday, to aid small businesses and the rural sector.
• Gao Yingxin, a former senior banker at Bank of China (Hong Kong) Ltd., has been named chairman of China Minsheng Banking Corp. Ltd., according to the bank’s Tuesday filing (link in Chinese) to the Shanghai Stock Exchange. (Read a related story here.)
• Overseas holdings in five A-share companies have exceeded the warning line of 26% of total shares. Overseas ownership of such companies is capped at 30%.
• Ping An Insurance (Group) Co. of China Ltd. founder Ma Mingzhe has stepped down as CEO but remains as chairman, according to the company’s Wednesday filing (link in Chinese) to the Shanghai Stock Exchange.
Business & Tech
• A total of 434 solar power projects have been granted subsidies after the closure of annual auction bids, according to the National Energy Administration. That number is down nearly 89% from 3,921 last year.
• Byton Ltd., an electric-vehicle startup founded by former BMW executives, will suspend all China operations for six months starting Wednesday amid a cash crunch.
• Zhao Yang, a former head of content operations at Taobao Live, the livestreaming arm of Chinese e-commerce giant Alibaba Group Holding Ltd., has been sacked for violating corporate discipline.
• The police in Guiyang, capital of Southwest China’s Guizhou province, said Wednesday that they had received a report (link in Chinese) from Guiyang Nanming Laoganma Food Co. Ltd., which makes the famous Lao Gan Ma chili sauce, that three people illegally forged the company’s stamp to fraudulently sign a cooperation agreement with a unit of internet giant Tencent Holdings Ltd., who recently managed to have a court freeze 16.2 million yuan ($2.3 million) of Laoganma’s assets.
• The voting rights of Luckin Coffee Inc. Chairman Lu Zhengyao, former CEO Jenny Qian and Lu’s sister have dropped to a combined 45.05% from the previous level of 75% following a ruling by a Cayman Islands court.
• Shanghai is set to see the resumption of some major offline events, with the staging of ChinaJoy, a leading gaming show, and the Shanghai International Film Festival later this month.
• The Ministry of Ecology and Environment said at a Tuesday briefing that China is set to ban the import of solid waste (link in Chinese), widely known as “foreign garbage,” from next year.
** ON THE CORONAVIRUS
• China has approved the use of an experimental coronavirus vaccine jointly developed by the Beijing Institute of Biotechnology and CanSino Biologics Inc. for the country’s military personnel, according to CanSino’s Monday filing to the Hong Kong Stock Exchange.
• The Chinese mainland reported (link in Chinese) three new coronavirus cases with symptoms Tuesday, all local cases in Beijing. The Beijing figure marks the lowest number of new cases in the Chinese capital since a local outbreak began in the city more than two weeks ago.
• As of Wednesday noon Beijing time, the number of coronavirus infections globally had reached over 10.4 million, with the death toll over 510,000, according to data compiled by Johns Hopkins University.
** AND FINALLY
Wuhan residents have not exactly been the luckiest people this year. They first went through a virus outbreak and over the past few days they’ve faced torrential rain, resulting in floods in some areas. In general, the country’s south has been suffering from torrential rain and massive floods that have left at least 78 people dead or missing since last month.
Wuhan residents catch fish that escaped from ponds amid flooding on Monday.
** LOOKING AHEAD
July 3: Release of Caixin China services PMI
Contact reporter Timmy Shen (firstname.lastname@example.org) and editors Yang Ge (email@example.com) and Joshua Dummer (firstname.lastname@example.org)
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