Cover Story: Cloud of Corruption Over China Forestry Reveals State-Owned System’s Weaknesses (AI Translation)

【周刊提前读】深度：央企中林集团如何被子公司失控黑洞拖垮

[para. 1] On July 13, Jiangsu Wanlin Modern Logistics Co., Ltd. (Wanlin Logistics) brought China Forestry Group Corporation (China Forestry Group) back into the spotlight after receiving a regulatory letter from the Shanghai Stock Exchange. Wanlin Logistics disclosed that they had accounts receivable worth 35.26 million yuan from China Forestry Group subsidiaries. Issues arose as the payments became overdue shortly after transactions, prompting the Stock Exchange to seek clarification from Wanlin Logistics regarding its business operations.

[para. 2] Wanlin Logistics had contracted with two subsidiaries of China Forestry Group—Guolin Honggang and Linchanpin Company—to sell timber, with payments expected via commercial acceptance bills. However, by year-end 2023, Guolin Honggang and Linchanpin Company failed to settle debts of 25.01 million yuan and 10.25 million yuan, respectively, citing an account takeover by China Three Gorges Corporation.

[para. 3] China Forestry Group's financial distress and significant debt of 156.7 billion yuan, which includes 49.1 billion yuan in short-term loans and 34 billion yuan in long-term loans, led to its placement under trusteeship by China Three Gorges Corporation in 2023. Despite efforts from the trustee, debt burdens remain critical, resulting in defaults on bank loans and foreign banks demanding early repayments.

[para. 4] Beginning in 2024, China Forestry Group faced numerous lawsuits, centralized in the Nanjing Intermediate People's Court, following its substantial debt problems. The company's creditor, Shanghai Debin, disclosed that the group's repayment plan is organized by the State-owned Assets Supervision and Administration Commission, prioritizing foreign banks first, followed by domestic banks, with non-financial institutions as the last priority.

[para. 5] Investigations unveiled that several China Forestry Group's top executives, including Song Quanli, were under scrutiny for serious violations. Song, for instance, is accused of bribery. He allegedly used his positions to solicit bribes in exchange for benefits like project approvals and job promotions.

[para. 6] China Forestry Group's subsidiary, Forest Products Company, is central to its liabilities, with debts reaching 80.6 billion yuan by 2022. Multiple senior managers connected to this subsidiary have been investigated, including Lin Zhan, Yang Guang, and Zhang Xu.

[para. 8] One revelation was China Forestry Group's misguided strategy of "short-term borrowing, long-term investing," exacerbated by heavy expenses and long return periods of forestry investments. The company, seeking to rapidly grow, borrowed heavily to finance large-scale projects, precipitating cash flow issues.

[para. 10] Investigations showed substantial fictitious trades and entangled debt relationships, revealing the group's failure to maintain control over its subsidiaries. Misguided investments concealed irrecoverable debts, clogged cash flows, and covered up complex financial quagmires disguised as strategic industrial chain operations.

[para. 15] China Forestry Group's mixed-ownership reform facilitated its rapid growth. Between 2013 and 2018, collaborations led to the establishment of 78 mixed-ownership companies. Though intended to unleash private investment and expand the group, the reforms instead exposed the company to extensive trade fraud.

[para. 18] The group's accounts receivable and prepayments, majorly from fictitious trade deals, amount to 121.7 billion yuan or 53% of the group's total assets, highlighting significant financial vulnerabilities.

[para. 21] Additionally, a large portion of the group's liabilities relate to unusual investments like acquiring Rugao Port, notorious for excessive financing and liabilities mounting under China Forestry Group's ownership.

[para. 32] An overambitious restructuring attempt of Rongsheng Heavy Industries highlighted the group's erratic investment behavior. Despite assuming substantial debt on behalf of Rongsheng, China Forestry Group acquired no equity or assets, culminating in large state-owned asset losses.

[para. 43] Ineffective debt management led to intensified financial difficulties. Despite a seeming reduction in the debt-to-asset ratio post-SASAC inspection, it rebounded soon after, exacerbating financial strain due to high-interest market loans obtained amid the pandemic.

[para. 48] The result is an onerous repayment burden. With 49.1 billion yuan in short-term loans and 34.1 billion in long-term loans, unpaid by mid-2023, the group faces significant liabilities compounded by limited cash flow recovery.