Chinese Phone Giant Admits To "Unprecedented Degree" Of Falsified Revenue

Tyler Durden's picture

Fabricating data in China, it turns out, is not only a favorite government pastime. Publicly traded, if state-owned, phone giant Unicom Group fabricated financials relating to 1.8 billion yuan ($261 million) in revenue over a five-year period from 2012 to 2016 - or as the company admitted, it engaged in an "unprecedented degree of falsified revenue."  This is China we are talking about, where the definition of "unprecedented" is very different from the US.

Lest there be any confusion, Bloomberg further elucidated that Unicom "engaged in organized, cross-departmental faking of financial figures" - according to an internal document leaked to Bloomberg. The disclosure is just another reminder of just how endemic fraud is at both government agencies and various enterprises in China. Recall that back in January, People’s Daily confirmed what everyone had known: the government was officially making up numbers in the rust-belt province of Liaoning, and fabricated fiscal numbers after the local economy was crippled by the commodity crunch. 

In a statement provided to Bloomberg, company officials claimed the fraud had a “relatively small impact” on the company and that figures had already been corrected in its financial statements. To assure investors, the company claims it has now strengthened oversight, having sacked 70 managers who were allegedly responsible for the fraud. It has also strengthened its monitoring efforts. Of course, with non-existant government oversight, corrupt auditors and "pay me as you go along" internal supervision, the numbers will remain as cooked as ever.

What was interesting was the timing of the leak: the report appeared as the Unicom Group is preparing to raise billions in capital from private investors after the firm was one of six state-owned enterprises selected for a pilot program in mixed ownership. Some have speculated that the leaker is either a disgruntled insider, or a case of industrial sabbotage with the document being passed to Bloomberg by a bidder hoping to buy at a more attractive price.

Hong-Kong based analyst Steven Liu of China Securities International also downplayed the significance of the disclosure, arguing the “irregularities” wouldn’t materially impact the company's bottom line. What was to be expected: after all Liu has a buy rating on the stock.

Here are a few more selections from the leaked document, courtesy of Bloomberg:

  • About 17% of the total falsified revenue came from Shaanxi’s Tongchuan and Yulin cities, while the Hanzhong branch falsified more than a third of its revenue
  • Penalties ranged from dismissals to administrative warnings, suspended party membership and salary deductions
  • Managers were punished according to the Communist Party disciplinary guidelines
  • The nature and repercussions of the fraud are "unprecedented" in Unicom’s history, according to the document

The news rocked shares of Unicom on Thursday; they closed at HK$10.24 after falling 3.2%, the largest drop in a month. Shares of China United Network Communications, its Shanghai-listed arm, have been suspended since late March, pending further disclosure of its mixed-ownership plan. Who knows what fraud is hiding there.

Despite authorities’ claims to the contrary, the fraud is, of course, representative of how managers at large Chinese corporates react when the numbers don't match their expectations. The Hong-Kong listed arm of the company has seen revenue fall during each of the last three years, together with profits for the last two as competition in the space has intensified. The leak offers a glimpse into how Chinese firms react when business starts to slow: managers hoping to preserve their reputations, not to mention their jobs, and keep the government-funded money spigot flowing have every incentive to falsify revenues and profit figures.

Incidentally, US companies do the same thing, only there it's called non-GAAP EPS (and revenue) and adjusted effective tax rate and remains perfectly legal.

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nmewn's picture

I demand the government officials recount their official numbers to be sure! ;-)

JackT's picture

I'm sure this is the only one. Why would a state owned company need to cook the books? They work for the people.

ItsyBitsy90's picture

Tomorrow they will be renamed as 'dba China Unicorn'

goldandsilverguy's picture

Sum Ting Wong

Wi Tu Hai

Ho Lee Fuk

Bang Ding Ow

random999's picture

or maybe the numbers were correct but the party members needed a little something to party with.

meta-trader's picture

you can add an extra 1500/USD week after week in your income just working on the internet for a couple of hours each day... check this link... http://bit.ly/2jdTzrM

null's picture

Right. Those darn short sellers messing with Pandora's box ... when will they learn.

Soul Glow's picture

Aurther Anderson getting a run for their money.

Secret Weapon's picture

A bunch of amatures compared to our own Uncle Sam.  Inflation rate - 2%.  Unemployment under 5%.  Sure it is.  Always wondered why it is a felony for us to lie to the Feds but it is business as usual for them to lie to the citizens who pay their wages? Seems backwards to me.  Just wondering. 

GracchusBrothers's picture

I knew Zuckerberg was married to a Chinese woman, but I didn't know he was this involved in Chinese chicanery.

Golden Showers's picture

That's alright. It's only re-venue. Not like tungsten in gold leaf. There's going to be some good severance packages to be sure.

coast1's picture

seems all governments lie?    lol

null's picture

But not all insist that you believe the lies at the point of a tank. Not yet.

AC_Doctor's picture

Slanty-eyed, yellow Niggez are steathly, convincing, lying fuckers...

Quivering Lip's picture

The first rule of corporate fraud is You don't admit corporate fraud.

Or something like that. Nothing a good nail gun can't fix.

yogibear's picture

Bernanke proved the  larger the lies the more people believe.

Hongcha's picture

This news is at least 24 hours old.  Price action in CHU on the NYSE indicates the money could not give a shit.  So I don't.

Cut to the chase.  NEXT...

83_vf_1100_c's picture

So you are saying the Chinese need to buy some German or Jap made nail guns?

null's picture

Ah, but they are strenuously arguing against fraud's main element: "material" [misrepresentation of fact].

yogibear's picture

Who cares, everyone does it. Why be honest?

Wall Street thrives an BS/fake numbers.

The bigger the con, the more money to be made. 

 

null's picture

Not even close.
Apples and oranges ... or, apples and cabbage; two fruits are too similar to be analogous.

Fiscal Smegma's picture

1.8 billion yuan is ($261 million) not BILLION..

 

NoPension's picture

A nickel 99.

$261 million. Chump change.....

Schmuck Raker's picture

My eyes are getting worse... I thought the company was called Unicorn.

Megaton Jim's picture

If you don't stop it, you'll go blind!

Joebloinvestor's picture

Anyone remember the fantasy land figures the Russians were churning out showing how central planning was so sucessful?

It doesn't work.

Megaton Jim's picture

Doesn't work in the People's Democratic Republic of California, either!

any_mouse's picture

I read it as the Unicorn group. Made sense.

ebworthen's picture

"Say it ain't so!"

Every NASDAQ stock propped by stock buybacks; I'm shocked I tell you, shocked!

adr's picture

It's all fake. All of it. Globally. 

Any company that is traded on an exchange fakes everything. The stock markets depend on fake data. 

I always try to figure out how stores can keep increasing comps quarter after quarter. If the store didn't get any bigger, how can it keep selling more than a year ago every few months. 

If the inventory wasn't selling, the store would be failing. There are only so many customers and with retail so overbuilt, how can you keep increasing sales? They claim they are taking business away from other stores. But how can every competitor keep increasing comps as well? 

Apparently the headquarters knows of sales the local store managers don't. You talk to a local store manager and they'll say they sold $2800 that day. To make revenue the beancounters at corporate say $28000. Sorry but I can't believe more than $20k gets sold at a single Lulu Lemon store every single day. 

Yeah there are other tricks like ordering 5 of an item instead of 10. If you sell 3 you sold 60%, selling 4 of ten is only 40%. Even though you sold less, comparable sales went up 20%.

Shouldn't it be fucking easy. Revenue minus expenses equals profit. Take out all the, well if we didn't have this charge and if our tax rate was this and if the zim dollar didn't devalue we would have made x. 

Oh yeah, if they did that 90% of the S&P and 100% of the Nasdaq would disappear overnight. When the poster child for stock market excess comes out and says, "Maybe my company is overvalued." you know the entire thing is bullshit. 

Truthseeker20's picture

there wont be any nuke war. It would ruin their plans for nwo. They are all for it

BritBob's picture

From the top down -

In tune with Macri's words, Xi Jinping thanked Argentina "the support they have given us for our claim of a single China as we support theirs for the Falkland Islands."  (Telam 17 May 2017)

How can Argentina claim the Falklands when she has never legally owned them?

Falklands- Never Belonged to Argentina:

https://www.academia.edu/31111843/Falklands_Never_Belonged_to_Argentina

 

 

highwaytoserfdom's picture

KPMG  need to set up Double Irish With A Dutch Sandwich..   Heck I'll  buy the thing and pile on goodwill and sell FB GOOG, MSFT, VZ and have the AlanBenFelon print up a bunch of Stock Based Compensation.   

 

The Alphabet  book burners and censor standing army occupiers  on decency game plan anyway.. Send in obsolete inventory like that Syrian ISIS show or FDR world war one  battleships in Pearl....    Get it over to the Summers so he can blow up the "great American Bubble Machine"   It works. Wait the Harvard endowment... 

 

"Sweet Caroline, Sweet Caroline, Sweet Caroline, Sweet Caroline"

ThanksIwillHaveAnother's picture

So what?  Buy the fucking dip, Mortimer!

whatisthat's picture

I would observe this post reveals another example (tip of the iceberg) to not permit the corrupt Chinese with greater engagement in SDR management and/or endeavors (nature and extent) because the Chinese cannot be trusted or relieved upon.

K_BX's picture

China Unicorn?