Leading seafood firm in China enters crisis mode

Published on
January 12, 2016

China’s leading seafood firm is in crisis mode after a Chinese news outlet published a lengthy investigative report on a petition by angry shareholders in its home base. A petition by Zhangzidao’s original shareholders - islanders in its home base of Changbai County near Dalian in northern China, has put Zhangzidao under new pressure to explain a CNY 800 million (USD 121.6 million; EUR 111.9 million) loss of scallop stocks which the firm attributed to abnormal weather conditions.

According to the report published by Wujie News some 2,000 locals in Changbai County signed a petition which was forwarded to the powerful Central Commission for Discipline Inspection (CCDI), seeking an investigation into a 2014 “natural disaster” which Zhangzidao said destroyed its deep-water scallop crop and forced a massive write-down onto investors in the firm which is listed on the Shenzhen stock market.

This latest development is significant given the CCDI is a powerful government department charged with rooting out corruption under an ongoing clampdown on malfeasance by officials and companies controlled by the state.

The Wu Jie News is co-owned by Alibaba and Caixin, a magazine renowned for high-profile reports on corporate fraud.

The 2,000 Changbai locals signed the petition with their own names and fingerprint in ink, according to the Wu Jie News, which published photos of the petition in which the Changbai shareholders claim their “economic rights have been infringed”. Though it listed on the stock market Zhangzidao started out as a cooperative of locals – who are angry that they have not been paid any dividends on their Zhangzidao shares and are worried that private placings of share have effectively diluted the value of their shares, which many are relying on for their livelihoods and retirement.

In response to the article, a Zhangzidao statement said the company is following up with the CDIC and local government office to find the petition as it had been unable to locate the document on the CDIC website (the Wu Jie article suggested the CDIC had published the petition online).

Wu Jie reporters Li Chao and Su Jian Jun spent over half a year talking to locals in Changbai County as well as to anonymous current and former executives at Zhangzidao. What emerges is a complex set of issues and grievances aired by locals who demand clearer answers on the 2014 incident.

The original Wu Jie article also quotes Zong Xiaoli, a lawyer at Beijing-based Ying Ke law firm who calls for an investigation by the China Securities Regulatory Commission and the local police in Changbai: Zong points out that if the 2,000 signatories claims about the 2014 incident are true then the statements issued by Zhangzidao as a listed company were untrue – a serious issue for any listed company.

Other Chinese media, including respected finance magazine Caixin prominently reported the latest twist in the “cold water group event” as the saga of Zhangzidao’s CNY 800 million missing scallops has come to be termed by the firm and by financial news outlets.

The controversy is certainly posing questions of Zhangzidao, which as well as being the country’s biggest listed firm in capitalisation terms, was also the first Chinese firm to receive MSC certification – an achievement celebrated with much pomp late last year. The company last week announced the resignation for “personal reasons” of the assistant to the director.

On January 12 Zhangzidao stock closed at CNY 9.65, down 5.01 percent. The Wujie article points out that the stock was trading at CNY 100 in 2008, when hopes were high for the company, which, it added, was once a “calling card” for China’s successful aquaculture industry. The Wu Jie article asks: “Media keep asking where did all the scallops go. What is a natural disaster, or is it a manmade disaster? There has been no satisfactory answers.”

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