Luckin Coffee resumed trading on Nasdaq Tuesday night after announcing that on May 15 it had received a written notice from the stock market’ s Listing Qualifications Staff that its securities were determined to be delisted from Nasdaq, more than 40 days after its disclosure of financial fraud.
After Luckin Coffee's revelation of its accounting and reporting improprieties, the China Securities Regulatory Commission (CSRC) immediately stated its firm stance against all forms of fraud by listed companies. CSRC said that it would investigate the case in line with any international investigation, strongly condemned any financial misconduct and protect the lawful rights and interests of investors across the globe.
Given the sensitive timing, with the US market being hit hard amid the pandemic, Luckin's alleged fraud not only damages the interests of investors and harms employees, but also damages the reputation of listed Chinese companies. However, the Luckin case does not represent the behavior of Chinese listed companies in the US, let alone the epitome of Chinese listed companies around the world.
Overseas listings help diversify investment options and enhance investment returns in the host capital market. It has already proven to bring win-win benefits. This incident has cast a negative light on China concept stocks to a certain extent, but those listed Chinese companies managed to deliver fundamentally stable performances despite recent rattling of the stock market.
Statistics show that the performance of Alibaba, JD.com, Pinduoduo, Bilibili and other high-quality Chinese stocks in the past year still outperformed the broader market index. The successful listing of Kingsoft Cloud on Nasdaq also displayed international investors' undiminished confidence of Chinese concept stocks.
It is a universal norm and standard that a company shall abide by laws and exercise honesty. Any company in breach of laws and regulations shall be subject to corresponding punishments in their respective market and country. It is a common practice for Nasdaq to implement such measures against listed companies that have financial fraud under its own listing rules.
Really high-quality Chinese stocks will not easily surrender because of the statement by the United States Securities and Exchange Commission (SEC) or Muddy Waters short selling. High-quality companies would be affected in the preparation process for listing, and the audit work would be more cautious. But as the Chinese proverb goes, “real gold is not afraid of the test of fire,” investors have a certain understanding of China concept stocks over the years and will not give up investment simply because of the statement of the SEC.
For a listed Chinese company, transparent information disclosure and open communication are always the most sound practices. They must stay true to the bottom line of financial integrity, and at the same time strengthen information disclosure to live up to investor expectations.
More importantly, Chinese firms should bear in mind the maintenance of a corporate image by complying with the laws and regulations and respecting markets and investors.