In Depth: How a $15 Million Chinese Pork Deal Turned Into a Cautionary Tale for Foreign Investors

1. In 2007, a group of foreign investors, including U.S. and Canadian entities, invested nearly $15.4 million in the Chuming Group, a major Chinese pork processor based in Dalian, Liaoning province. Facilitated by local authorities, the investment aimed to help Chuming recover from cash flow problems exacerbated by land acquisition-related debt. At the time, Chuming commanded over 50% of the local market and had a strong reputation in northeast China, prompting confidence from the foreign investors, who intended to be passive financial backers with no operational control or interference[para. 1][para. 4][para. 5][para. 6][para. 7][para. 8][para. 9][para. 10][para. 11].

2. The foreign investment structure involved the creation of Dalian Precious Sheen Investments Consulting Co. Ltd. (PSIC), which housed three key Chuming subsidiaries. PSIC’s parent company included both the company’s founder, Shi Huashan, and the foreign investors as shareholders. The foreign group’s goal was to take the company public in the U.S., which occurred in 2007 when PSIC’s parent completed a reverse merger with the OTC-listed Energroup Holdings Corp., with Shi as chairman and a board dominated by his associates[para. 9][para. 10][para. 11][para. 12][para. 13][para. 14].

3. Not long after the reverse merger, the trust between investors and Shi began to erode as the company stopped providing U.S. SEC filings in 2010 and halted dividends. Shi also ousted investor-appointed financial staff and independent directors. Years of failed communications culminated in a protracted legal battle initiated in 2014. In 2015, a U.S. court awarded the investors control of Energroup, leading to new revelations, including allegations that Shi had forged shareholder signatures to alter company governance and moved PSIC assets without investor knowledge or approval. By 2021, the PSIC bank account used for the original investment had less than $6,200 remaining, and unauthorized asset transfers totaling 10 million yuan had been made to Shi and his wife with no equivalent payment received[para. 15][para. 16][para. 17][para. 18][para. 19][para. 20][para. 21][para. 22][para. 23].

4. The most troubling development surfaced in 2019, when Chuming and its subsidiaries entered bankruptcy restructuring—initiated not by creditors but by the debtors themselves—without the knowledge of the foreign shareholders. Investors suspect the restructuring may have involved inflating liabilities, highlighting a discrepancy of about 12 billion yuan cited in court documents. Repeated efforts by investors to access details of these proceedings were impeded by local regulatory and judicial authorities, resulting in lost voting rights at a crucial stage and further undermining investor interests[para. 24][para. 25][para. 26][para. 27][para. 28][para. 29][para. 30][para. 31][para. 32][para. 33].

5. Additional concerns arose when the meat processing company’s operations were outsourced in 2017 to a firm created by Shi and subsequently sold to Chengsan Group for just 1 million yuan in 2021—after Chengsan withdrew from a bankruptcy restructuring obligation requiring roughly 90 million yuan in investment. Investors labeled this a “malicious transfer” ignored by the court-appointed administrator. Attempts to review the company’s decade-long financial records were restricted to a mere 15 days by the Liaoning Provincial Higher People’s Court, a period investors deemed unworkable. By the time access was granted, the factory had changed hands, blocking effective oversight[para. 34][para. 35][para. 36][para. 37][para. 38][para. 39][para. 40][para. 41][para. 42][para. 43][para. 44][para. 45][para. 46].

6. The foreign investors were continually frustrated in tracking their $15.4 million outlay, as the court denied access to key documents, and law enforcement was slow to act on criminal complaints regarding alleged embezzlement and forgery. Even years after the bankruptcy liquidation, Chuming’s records show it remains operative, prompting questions from the investors about the whereabouts of ongoing operating profits and their entitlement to returns. Their experience underscores the significant risks that foreign investors may face in China, including lack of legal recourse and local authority resistance, even when a business remains active post-liquidation[para. 47][para. 48][para. 49][para. 50][para. 51][para. 52][para. 53][para. 54][para. 55].