New Chinese Accounting Rules - Sound Familiar?

Briefly: New Chinese Accounting Rules May Conceal As Much As They Reveal

by William B. Gamble
Published on January 8th, 2007
ARTICLES

Starting January 1, 2007, the listed companies on the Shanghai and Shenzhen stock will adopt new accounting rules that according to reports are similar to international financial reporting standards (IFRS)--the generally accepted rules outside of the US.

But there is one very big problem. China has chosen not to require the disclosure of transactions between businesses under common ownership or management control, known as related parties.

What this means is that profits and losses can be transferred from the books of one group member to another, so that no single member can be evaluated on its own. This need not be a serious problem where ownership is diverse and widespread, butÉ

Perhaps 98% of China’s listed companies are in fact owned by the state. State ownership may be by the national government, a provincial government or a municipality, but it is still the state. The listed company is usually owned by a holding company that also holds other unlisted companies.

It is common practice to move profits, income, assets and debts in and out of these companies. So the books of a listed company can be easily manipulated to make it appear that a profit exists wher there is none. Also these shell companies are often used by insiders to skim money out of the company.

In truly free market economies such practices are difficult there are numerous regulators and a free financial press. But in China, if no one is watching, creative accounting can be a wonderful thing.

It also has a precedent. Such shifting of assets and liabilities among companies was exactly the problem that exacerbated the Asian financial crisis. Investors woke up to find that the listed companies’ assets has been ‘loaned' out to related subsidiaries owned, usually by a controlling family. Investors in the rest of Asia are now more cautious. Unfortunately they do not seem to have applied the lessons to China.

CHDW 20% up..


http://stockcharts.com/h-sc/ui?s=chdw

Rumor of buyout...
Sounds good.........
Some biggies..are talking ab this..google "Stock doctor"

Transfer Agent:
Computershare Investor Services
Golden, CO 80401

Who is the transfer agent?

Does the company have a web site?

Outstanding Shares: 17,147,268
Source: MGFS ( 08/04/2006 )

CHART

http://stockcharts.com/h-sc/ui?s=chdw