Investigative reporter detained after writing more than a dozen stories criticizing the finances of a major Chinese state-owned construction equipment maker

Free our reporter, begs newspaper as China cracks down on journalists

6:25am EDT

By Megha Rajagopalan

BEIJING (Reuters) – A Chinese newspaper pleaded with police on Wednesday to release an investigative reporter accused of defamation in an unusual public rebuke amid a wider government crackdown on freedom of expression. The state-run New Express tabloid printed a front-page commentary begging police in the south-central city of Changsha to set reporter Chen Yongzhou free under the headline: “Please release him.” Chen was detained after writing more than a dozen stories criticizing the finances of a major state-owned construction equipment maker.Chen’s arrest, which coincides with new curbs on journalists, lawyers and internet users in China, throws into question the role of whistleblowers as the country’s leadership moves to eradicate graft.

“When the government is cracking down on freedom of expression and arresting journalists … it seems to cast serious doubt on how serious this anti-corruption drive is,” said Maya Wang of Human Rights Watch.

Chen reported that Changsha-based Zoomlion Heavy Industry Science and Technology Co. Ltd. engaged in sales fraud, exaggerated its profits and used public relations to defame its competitors, accusations strongly denied by the company.

The commentary went viral on Sina Weibo, China’s Twitter-like microblog service, on Wednesday, and was republished by Chinese media with no obvious antagonism from censorship authorities.

Zoomlion said it had complained to the Changsha police about Chen following his stories.

“The reason we did it was to safeguard the legitimate rights of the company,” Zoomlion vice president Sun Changjun told Reuters, declining further comment.

Media experts said the commentary was unusual but not highly controversial because the paper, published in the southern metropolis of Guangzhou, was criticizing Changsha authorities as opposed to the central government.

Changsha police did not specifically name Zoomlion, but said Chen was detained on defamation charges.

“New Express journalist Chen is suspected of the crime of damaging business reputation, and so on October 19 was detained by police according to the law,” the city’s public security bureau said in a posting on its microblog.

In the acerbic commentary, New Express alluded to state-owned Zoomlion’s influence in Changsha.

“Even though Zoomlion is very strong and pays a lot of taxes in Changsha, we are still of the same class,” the commentary said. “Uncle police, big brother Zoomlion, we beg you, please let Chen Yongzhou go.”

A Chinese cartoonist was detained last week for criticizing the government of the flood-stricken city of Yuyao using Weibo.

“BLACK HAND AT WORK”

New Express had become embroiled in an ongoing feud with Zoomlion over Chen’s reporting, with a company employee publicly speculating that its hometown competitor Sany Group Co. Ltd. had planted Chen’s stories. Sany has denied any wrongdoing.

“This is nothing but paid journalism, an alignment of interests – there is definitely a black hand at work behind the scenes,” Gao Hui, an assistant to the chairman of Zoomlion, wrote on his microblog on July 16, leading the New Express to sue him for libel for repeatedly criticizing Chen’s reporting.

While state-run, the newspaper is one of many regional publications which generally have a more local focus than, for instance, the official Xinhua news agency that is more of a government mouthpiece with national reach.

In one article, published in May, Chen detailed what he called sales fraud by Zoomlion, based on information found in an anonymous USB drive delivered to the New Express. That caused the company’s stock price to fall more than 5 percent, even though the company rejected the charge.

In a July statement on the Hong Kong stock exchange, Zoomlion said it had been under an “all-round malicious attack by its competitor” since the fourth quarter of 2012. It insisted there was nothing wrong with its books.

Analysts said the decision to detain a journalist, though not uncommon, is not made lightly.

“Zoomlion is a company that must have a strong and close relationship with authorities in Hunan,” said Jin Zhong, publisher of Hong Kong-based Open Magazine.

The fierce competition between Sany and Zoomlion amid a slowdown in the construction equipment market has sometimes turned ugly, with each company saying the other engaged in corporate spying. Sany’s chairman told a local reporter this year that Zoomlion was involved in kidnapping his son, a charge Zoomlion denied.

China Police Detain Reporter After Stories on Zoomlion Heavy

Chinese police detained a reporter who wrote stories questioning the finances of Zoomlion Heavy Industry Science and Technology Co., prompting his newspaper to publish a front-page appeal for his release.

Chen Yongzhou was held on Oct. 18, Guangzhou-based Xinkuaibao, which translates to New Express, said in the report published with the headline “Please Release Him.” Police in the southern city of Changsha, where Zoomlion (1157) is based, said on the department’s microblog that a Xinkuaibao reporter surnamed Chen was detained after accusations he damaged the commercial reputation of a company that wasn’t identified.

The detention follows the arrest of Xinkuaibao reporter Liu Hu as China’s government seeks to expand a crackdown on the flow of what it calls online rumors and false news. Zoomlion shares slumped 5.9 percent in Hong Kong, the most since June 20, as the report renewed attention to questions over its sales.

There needs to be evidence of a deliberate attack as well as damage to the reputation for someone to be convicted of damaging a company’s reputation, said Xu Jinglong, a partner at Beijing-based Zhong Lun Law Firm.

Press Freedom

“Police should be cautious when it takes action across different jurisdictions,” said Xu. “It is important to protect the freedom of the press.”

One of the 15 stories Chen wrote about Zoomlion, published on May 27, accused the company of improperly accounting for sales, forcing Zoomlion to halt trading of its shares in Hong Kong and Shenzhen. The company has denied it falsified sales.

Zoomlion had filed a complaint against Chen with local police last week, said a media official for the construction-equipment maker who asked not to be identified because of the company’s rules.

The company’s stock closed at HK$6.82 in Hong Kong. The Shenzhen-traded shares fell 2.9 percent to 5.61 yuan.

Zoomlion was also forced to halt its shares in January after Ming Pao Daily published a story questioning its sales. The Hong Kong-based newspaper said it received an unsigned letter with the accusations, which Zoomlion denied and called “false, groundless and misleading.”

Zoomlion posted a 48 percent drop in profit to 2.92 billion yuan ($480 million) in the six months ended June as China’s slowing economic growth damped demand at the nation’s second-largest construction equipment maker.

Liu, the other Xinkuaibao reporter, was held on Aug. 24 and the Beijing People’s Procuratorate approved his arrest on Sept. 30, his lawyer said on Oct. 10. He was accused of fabricating rumors after he made online accusations of wrongdoing against a former senior official in Chongqing city, according to the official Xinhua News Agency.

To contact Bloomberg News staff for this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

Chinese Company Shares Plunge amid Outcry over Muckraker Arrest

10-24 10:35 Caijing

Zoomlion’s A-shares dropped 2.94 percent while its H-shares lost 5.93 percent following accusations that the state-owned company is abusing its authority power to retaliate a muckraker.

Shares of Zoomlion Heavy Industry Science And Technology Co., Ltd, China’s second-largest heavy machinery manufacturer plunged in both Shanghai and Hong Kong stock exchanges after a journalist exposing the company’s financial fraud was arrested.

Zoomlion’s A-shares dropped 2.94 percent while its H-shares lost 5.93 percent following accusations that the state-owned company is abusing its authority power to retaliate a muckraker.

Chen Yongzhou, journalist with New Express, a Guangdong-based metropolitan daily, wrote a series of investigative articles in May, alleging that Zoomlion was faking sales numbers.

Chen was arrested in Guangzhou by police from Changsha where Zoomlion is headquartered and is a big taxpayer, sparking outrages across the Internet and among his media peers.

The New Express, called for the release of its employee in front-page articles on Wednesday and Thursday while other Chinese media shored up support by giving extensive coverage.

In an investigative report on May, 27th , Chen suspected that Zoomlion was involved in deceptive sales practices as he found that a large amount of orders in the first three quarters of 2012 were returned in the fourth quarter.

Chinese media also accused the company of inflating its net income by as much as 700million yuan in the first half of 2012.

Zoomlion’s A-shares were in a losing streaking following the reports and had been halved since February.

The paper sued the company in July after it called Chen’ reports defamation and an organized attack. Specific information about the case is still unclear.

The state-owned Zoomlion was founded in 1992 and reported over 90billion yuan in revenue and paid 12billion yuan in tax last year.  The Hunan branch of the State-owned Assets Supervision and Administration Commission(SASAC), China’s state-owned assets regulator, is a major shareholder in Zoomlion with a 16.26 percent stake. Changsha is the capital city of Hunan Province.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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