The Current State of the Market for US-listed China Stocks

Soon we have the opportunity to observe the second anniversary of the first Chinese delisting from Nasdaq. RINO International (RINO) was delisted just three weeks after short-seller Muddy Waters Research published a damaging report on the company and RINO had to concede that some of its claims about contracts were made-up. This was the beginning of two terrible years for U.S.-listed companies that are based in China. Many more frauds and severe accounting irregularities were uncovered, followed by dozens of delistings from NYSE and Nasdaq and a general hostility towards Chinese companies that led to a massive sell-off of Chinese stocks by foreign investors.

Small cap stocks were most affected while Chinese blue chips, mostly ADRs, survived the turmoil relatively unharmed. Of the ~280 U.S.-listed small- and micro-cap China stocks we are tracking at Trading China, only 9 stocks saw price gains between December 31, 2010 and September 30, 2012. The vast majority has lost more than half its value, and more than one third (94 stocks) dropped more than 90% during that time. And all of this happened while the general U.S. markets saw massive gains.

While Chinese blue chips have seen the occasional hiccup, their performance since 2010 clearly shows that foreign investors have not abandoned them and that the sell-off has been mostly confined to the small cap space. An index of 20 U.S.-listed China-based blue chips has gained 5.5% since January 1, 2010, clearly underperforming the general U.S. markets (S&P 500 +29.19%, NASDAQ Composite 37.33%), but even more clearly outperforming the Chinese domestic market, as the leading Chinese index, the Shanghai Composite, lost 36.35% since the beginning of 2010.

In a series of articles we will recap the past two years for Chinese small cap stocks and look at the current state of those companies in the market.

1. The Fatalities
2. Delistings
3. Going Dark
4. Going Private
5. Reverse Mergers

The Fatalities

All of the following companies lost their senior exchange listing and most are now quoted on the pink sheets. All of them have been delisted for good reason, many are blatant frauds, others had auditors and senior management resign or they stopped filing reports with the SEC. Those are all failed companies, whether or not there is fraud involved... it doesn't matter anymore. Investing in, or even trading those stocks comes with extreme risk, especially as the SEC has already revoked the registration for several stocks, and others will probably disappear as well.

ABAT -- Advanced Battery Technology
(Performance Dec 31, 2010 to Sep 30, 2012: -91.30%)
2012-02-06 -- Last SEC Filing
2011-11-30 -- Delisting from NASDAQ
2011-11-15 -- Trading halted by NASDAQ
2011-10-25 -- CFO Resignation
2011-08-15 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

AOBI -- American Oriental Bioengineering
(Performance Dec 31, 2010 to Sep 30, 2012: -73.34%)
2012-06-15 -- Last SEC Filing
2012-06-15 -- Auditor Change
2012-05-29 -- Delisting from NYSE Amex
2012-03-16 -- Trading halted by NYSE Amex
2011-11-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

APWR -- A-Power Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -97.26%)
2011-11-08 -- Last SEC Filing
2011-10-04 -- Auditor Change
2011-09-26 -- Delisting from NASDAQ
2011-09-15 -- Auditor Engagement
2011-08-17 -- Receives SEC Subpoena
2011-07-05 -- CFO Change
2011-06-27 -- Trading halted by NASDAQ
2011-06-26 -- Auditor Resignation
2010-12-01 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CAGC -- China Agritech
(Performance Dec 31, 2010 to Sep 30, 2012: -97.64%)
2012-06-27 -- Last SEC Filing
2012-01-16 -- CFO Resignation
2011-05-20 -- Delisting from NASDAQ
2011-04-06 -- Auditor Engagement
2011-03-14 -- Trading halted by NASDAQ
2011-03-14 -- Auditor Resignation
2010-11-13 -- Auditor Change
2010-11-10 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CBEH -- China Integrated Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -94.00%)
2012-09-24 -- Last SEC Filing
2012-09-18 -- CFO Change
2011-07-21 -- Auditor Engagement
2011-06-15 -- Delisting from NASDAQ
2011-05-19 -- CFO Appointment
2011-04-28 -- CFO Resignation
2011-04-26 -- Auditor Resignation
2011-04-20 -- Trading halted by NASDAQ
2011-03-16 -- Last Quarterly/Annual Report: FY2010 ended December 31, 2010

CCDM -- China Century Dragon Media
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2011-10-17 -- Delisting from NYSE Amex
2011-09-01 -- Last SEC Filing
2011-03-22 -- Auditor Resignation
2011-03-21 -- Trading halted by NYSE Amex
2010-11-22 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CCME -- China MediaExpress
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-08-28 -- SEC Registration REVOKED
2011-05-19 -- Last SEC Filing
2011-05-19 -- Delisting from NASDAQ
2011-03-13 -- CFO Resignation
2011-03-11 -- Trading halted by NASDAQ
2011-03-11 -- Auditor Resignation
2010-11-09 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CELM -- China Electric Motors
(Performance Dec 31, 2010 to Sep 30, 2012: -99.34%)
2011-09-20 -- Last SEC Filing
2011-09-16 -- CEO Appointment
2011-09-15 -- CEO Resignation
2011-06-14 -- Delisting from NYSE Amex
2011-05-31 -- Auditor Resignation
2011-05-31 -- CFO Resignation
2011-03-31 -- Trading halted by NYSE Amex
2010-11-12 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CIIC -- China Infrastructure Investment
(Performance Dec 31, 2010 to Sep 30, 2012: -88.41%)
2011-12-16 -- Last SEC Filing
2011-11-18 -- Delisting from NASDAQ
2011-11-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011
2011-09-21 -- CFO Resignation

CILE -- China Intelligent Lighting
(Performance Dec 31, 2010 to Sep 30, 2012: -99.97%)
2011-12-28 -- Last SEC Filing
2011-12-21 -- CFO Resignation
2011-06-14 -- Delisting from NYSE Amex
2011-04-01 -- Auditor Engagement
2011-03-24 -- Trading halted by NYSE Amex
2011-03-23 -- Auditor Resignation
2010-11-08 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CNEP -- China North East Petroleum
(Performance Dec 31, 2010 to Sep 30, 2012: -96.19%)
2012-09-24 -- Last SEC Filing
2012-06-21 -- Delisting from NYSE Amex
2012-03-01 -- Trading halted by NYSE Amex
2011-11-09 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

CNGL -- China Nutrifruit
(Performance Dec 31, 2010 to Sep 30, 2012: -98.93%)
2012-05-10 -- Last SEC Filing
2012-06-15 -- Delisting from NYSE Amex
2012-04-26 -- Trading halted by NYSE Amex
2012-02-14 -- Last Quarterly/Annual Report: Q3/FY2012 ended December 31, 2011

CRTP -- China Ritar Power
(Performance Dec 31, 2010 to Sep 30, 2012: -71.16%)
2012-02-15 -- Last SEC Filing
2011-06-24 -- Delisting from NASDAQ
2011-04-18 -- Trading halted by NASDAQ
2010-11-15 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

CSKI -- China Sky One Medical
(Performance Dec 31, 2010 to Sep 30, 2012: -95.27%)
2012-04-03 -- Last SEC Filing
2012-03-12 -- Auditor Resignation
2012-03-08 -- Delisting from NASDAQ
2012-02-16 -- Trading halted by NASDAQ
2011-12-16 -- CFO Resignation
2011-11-09 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011

CTESY -- SinoTech Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-05-30 -- SEC Registration REVOKED
2012-05-14 -- Last SEC Filing
2011-10-19 -- Delisting from NASDAQ
2011-08-16 -- Trading halted by NASDAQ
2011-08-05 -- Last Quarterly/Annual Report: Q3/FY2011 ended June 30, 2011

CVVT -- China Valves Technology
(Performance Dec 31, 2010 to Sep 30, 2012: -95.42%)
2012-09-21 -- Delisting from NASDAQ
2012-09-11 -- Last SEC Filing
2012-07-16 -- Trading halted by NASDAQ
2012-07-09 -- Auditor Resignation
2012-05-08 -- Last Quarterly/Annual Report: Q2/FY2012 ended March 31, 2012

DEER -- Deer Consumer Products
(Performance Dec 31, 2010 to Sep 30, 2012: -79.44% | currently halted)
2012-08-13 -- Trading halted by NASDAQ
2012-08-09 -- Last SEC Filing
2011-08-09 -- Last Quarterly/Annual Report: Q3/FY2012 ended June 30, 2012

DGWIY -- Duoyuan Global Water
(Performance Dec 31, 2010 to Sep 30, 2012: -97.66%)
2012-05-11 -- Last SEC Filing
2012-01-26 -- Delisting from NYSE
2011-04-06 -- Trading halted by NYSE
2011-04-04 -- CFO Resignation
2011-03-22 -- Last Quarterly/Annual Report: FY2010 ended December 31, 2010

DYNP -- Duoyuan Printing
(Performance Dec 31, 2010 to Sep 30, 2012: -96.59%)
2012-04-16 -- Last SEC Filing
2011-04-13 -- Delisting from NYSE
2010-09-08 -- CEO/CFO Appointment
2010-09-08 -- CEO Resignation
2010-09-06 -- CFO Resignation
2010-09-06 -- Auditor Dismissal
2010-05-11 -- Last Quarterly/Annual Report: Q2/FY2010 ended March 31, 2010

FEED -- Agfeed Industries
(Performance Dec 31, 2010 to Sep 30, 2012: -86.06%)
2012-09-24 -- Last SEC Filing
2012-07-27 -- CFO Resignation
2012-04-18 -- CEO Appointment
2012-02-10 -- Delisting from NASDAQ
2011-12-19 -- Trading halted by NASDAQ
2011-12-16 -- CEO Resignation
2011-08-09 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

FUQI -- Fuqi International
(Performance Dec 31, 2010 to Sep 30, 2012: -86.68%)
2012-07-26 -- Last SEC Filing
2011-07-30 -- CFO Resignation
2011-03-29 -- Delisting from NASDAQ
2009-11-09 -- Last Quarterly/Annual Report: Q3/FY2009 ended September 30, 2009

HEAT -- SmartHeat
(Performance Dec 31, 2010 to Sep 30, 2012: -23.49% | currently halted)
2012-08-28 -- Last SEC Filing
2012-08-20 -- Last Quarterly/Annual Report: Q2/FY2012 ended June 30, 2012
2012-07-10 -- CFO Appointment
2012-05-30 -- Trading halted by NASDAQ
2012-05-25 -- CEO Resignation
2012-05-25 -- CFO Resignation

HQSM -- HQ Sustainable Maritime
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-04-10 -- SEC Registration REVOKED
2011-08-10 -- Last SEC Filing
2011-07-12 -- Delisting from NYSE Amex
2011-05-26 -- Auditor Resignation
2011-04-01 -- Trading halted by NYSE Amex
2010-11-09 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

JGBO -- Jiangbo Pharmaceuticals
(Performance Dec 31, 2010 to Sep 30, 2012: -98.78%)
2011-08-16 -- Last SEC Filing
2011-08-04 -- Delisting from NASDAQ
2011-05-31 -- Trading halted by NASDAQ
2011-05-23 -- Last Quarterly/Annual Report: Q3/FY2011 ended March 31, 2011

NIVS -- NIVS IntelliMedia Technology
(Performance Dec 31, 2010 to Sep 30, 2012: -99.08%)
2011-08-26 -- Last SEC Filing
2011-06-24 -- Delisting from NYSE Amex
2011-06-09 -- Auditor Engagement
2011-05-14 -- Auditor Resignation
2011-04-10 -- Auditor Engagement
2011-03-24 -- Trading halted by NYSE Amex
2011-03-23 -- Auditor Resignation
2010-11-04 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

ORSX -- Orsus Xelent Technologies
(Performance Dec 31, 2010 to Sep 30, 2012: -93.63%)
2011-11-15 -- Last SEC Filing
2011-10-21 -- Delisting from NYSE Amex
2011-08-22 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

PUDA -- Puda Coal
(Performance Dec 31, 2010 to Sep 30, 2012: -99.51%)
2011-09-02 -- Delisting from NYSE Amex
2011-09-01 -- Last SEC Filing
2011-08-19 -- Auditor Engagement
2011-07-07 -- Auditor Resignation
2011-04-11 -- Trading halted by NYSE Amex
2011-03-16 -- Last Quarterly/Annual Report: FY2010 ended December 31, 2010

QXMCF -- Qiao Xing Mobile Communication
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-08-23 -- SEC Registration REVOKED
2012-06-15 -- Delisting from NASDAQ
2012-05-02 -- CFO Resignation
2012-04-16 -- Trading halted by NASDAQ
2011-11-30 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

SBAY -- Subaye
(Performance Dec 31, 2010 to Sep 30, 2012: -99.97%)
2011-11-04 -- Last SEC Filing
2011-11-01 -- CFO Resignation
2011-06-24 -- Delisting from NASDAQ
2011-06-01 -- CFO Appointment
2011-05-20 -- CFO Resignation
2011-05-12 -- CEO Appointment
2011-05-12 -- CEO Resignation
2011-04-08 -- Trading halted by NASDAQ
2011-04-01 -- Auditor Resignation
2011-03-13 -- CFO Appointment
2011-03-10 -- CFO Resignation
2010-12-23 -- Auditor Change
2010-12-23 -- Last Quarterly/Annual Report: FY2010 ended September 30, 2010

SCEI -- Sino Clean Energy
(Performance Dec 31, 2010 to Sep 30, 2012: -95.01%)
2012-09-28 -- Last SEC Filing
2012-09-25 -- Delisting from NASDAQ
2012-08-10 -- CFO Resignation
2012-05-21 -- Trading halted by NASDAQ
2012-05-15 -- Last Quarterly/Annual Report: Q1/FY2012 ended March 31, 2012

SIHI -- SinoHub
(Performance Dec 31, 2010 to Sep 30, 2012: -94.26% | currently halted)
2012-09-24 -- Last SEC Filing
2012-09-07 -- Trading halted by NYSE Amex
2012-08-31 -- Auditor Resignation
2012-05-15 -- Last Quarterly/Annual Report: Q1/FY2012 ended March 31, 2012

UTRA -- Universal Travel Group
(Performance Dec 31, 2010 to Sep 30, 2012: -88.73%)
2012-08-15 -- Last SEC Filing
2012-05-08 -- Delisting from NYSE
2011-11-14 -- Last Quarterly/Annual Report: Q3/FY2011 ended September 30, 2011
2011-04-12 -- Trading halted by NYSE

WATG -- Wonder Auto Technology
(Performance Dec 31, 2010 to Sep 30, 2012: -96.03%)
2012-09-19 -- Last SEC Filing
2011-12-13 -- Auditor Engagement
2011-12-06 -- Auditor Resignation
2011-09-12 -- Delisting from NASDAQ
2011-07-25 -- CFO Appointment
2011-07-12 -- CFO Resignation
2011-07-12 -- CEO Resignation
2011-05-09 -- Trading halted by NASDAQ
2010-12-06 -- Auditor Change
2010-11-09 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

WEMU -- Worldwide Energy and Manufacturing USA
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-05-16 -- SEC Registration REVOKED
2011-05-30 -- CFO Appointment
2011-04-26 -- CFO Resignation
2011-04-25 -- CEO Appointment
2011-04-25 -- CEO Fired
2011-02-19 -- CFO Appointment
2011-02-19 -- CFO Resignation
2010-11-22 -- Last Quarterly/Annual Report: Q3/FY2010 ended September 30, 2010

XINGF -- Qiao Xing Universal Resources
(Performance Dec 31, 2010 to Sep 30, 2012: -100.00%)
2012-08-23 -- SEC Registration REVOKED
2012-06-15 -- Delisting from NASDAQ
2012-04-16 -- Trading halted by NASDAQ
2012-01-19 -- Auditor Change
2011-12-01 -- Last Quarterly/Annual Report: Q2/FY2011 ended June 30, 2011

YUII -- Yuhe International
(Performance Dec 31, 2010 to Sep 30, 2012: -98.55%)
2012-07-26 -- Last SEC Filing
2012-07-20 -- CFO Resignation
2011-08-10 -- Auditor Engagement
2011-07-21 -- Delisting from NASDAQ
2011-06-17 -- Trading halted by NASDAQ
2011-06-17 -- Auditor Resignation
2011-05-16 -- Last Quarterly/Annual Report: Q1/FY2011 ended March 31, 2011

China Stock Obituary 2011

China Agritech (CAGC.PK) is currently trading at $1.65, down 86.56% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 8% (Extreme Risk).

Fertilizer company China Agritech has been accused of many things, among them drastically overstating the scope of its business. Things turned fatal when CAGC did not file its annual report for 2010, and subsequently dismissed its Big Four auditor Ernst & Young with very questionable reasoning. CAGC has since engaged a new auditor, California-based Simon & Edward, and a new chairman for both the audit committee and the special committee that was formed in March to look into the matters that led to the initial Nasdaq trading halt. In late May the Chief Operating Officer of CAGC resigned. We haven't heard any details from the ongoing investigation for the past three months, and the company's stock is trading on the pink sheets since May 20, 2011.

China-Biotics (CHBT.PK) is currently trading at $1.73, down 88.27% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 7% (Extreme Risk).

Probiotics company CHBT has been under attack for more than a year until on June 22, BDO Limited, the company's auditor for more than five years, resigned. The firm found several "irregularities" that "likely constitute illegal acts", including fake documentation and being directed by the Company to access a suspected fake website for the company's bank account. One day later, the company's CFO and the Chairman of the Audit Committee resigned as well. The stock was delisted from Nasdaq on July 1 and finds itself now on the pink sheets.

China Century Dragon Media (CCDM.PK) is currently trading at $0.30, down 94.29% from it's IPO price of $5.25 (February 8, 2011). The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 7% (Extreme Risk).

On March 22, just six weeks after CCDM's IPO on NYSE Amex, its auditor found "an indication that the accounting records have been falsified, which would constitute an illegal act." The company was unwilling to let its auditor obtain official bank records directly from the bank, and MaloneBailey resigned its engagement with the company. Similar to all the other cases, the stock was halted by the exchange, delisted, and is now quoted on the pink sheets since June 21, where it is now a "zombie stock" with not a single share having changed owners in the past four weeks.

China Electric Motors (CELM.PK) is currently trading at $0.33, down 92.73% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

CELM was destined to share the fate of the other WestPark deals NIVS, CILE and CCDM (for details please see: "WestPark Capital's RTO Deals"). The auditor (MaloneBailey) found discrepancies in the bank statements, a Special Committee was formed on March 31 to investigate those issues, and an SEC investigation was launched on April 7. On May 24, all of the members of the Special Committee resigned, the company terminated the forensic audit by PricewaterhouseCoopers, and at least one independent director resigned as well. MaloneBailey finally resigned as the company's auditor on May 31, stating "management’s unwillingness to take appropriate actions" and "an unwillingness to cooperate with the Securities & Exchange Commission and Nasdaq." The Chief Financial Officer left the company on the same day, and the Chairman of the Audit Committee followed on June 3. CELM was subsequently delisted from NYSE Amex and is trading on the pink sheets since June 14, 2011.

China Integrated Energy (CBEH.PK) is currently trading at $0.69, down 90.59% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 6% (Extreme Risk).

Biodiesel maker China Integrated has been accused of significantly overstating its revenue and profits. The company's auditor, KMPG, first signed off on CBEH's annual report for 2010, then shortly after withdrew its opinion and resigned on April 26, stating that it is no longer able to "rely on management’s representations in connection with its 2010 audits of the consolidated financial statements and the effectiveness of internal control over financial reporting of the company." China Integrated launched an investigation into these matters, but on April 28 its CFO resigned and shortly after, on May 3, a member of the audit committee left the company, saying that "recent events, including but not limited to the inconsistencies between representations made by CBEH’s management to the Board of Directors, have eroded my confidence." The company has since hired a new director and CFO and says it "remains committed to identifying and engaging a new auditor as soon as possible." The stock has been delisted from Nasdaq on June 15 and is now quoted on the pink sheets.

China Intelligent Lighting (CILE.PK) is currently trading at $0.11, down 95.85% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 6% (Extreme Risk).

When CILE's auditor (MaloneBailey) resigned on March 24, it gave to protocol that it found "accounting fraud involving forging of the Company's accounting records and forging bank statements, in addition to other discrepancies identified during its testing of the Company’s accounts receivable." The Chairman of the Audit Committee resigned on the same day. China Lighting's stock was delisted from NYSE Amex on June 20 and is currently quoted on the pink sheets. It should be noted that the company hired Friedman LLP as its new auditor shortly after MaloneBailey's resignation (see also NIVS).

China MediaExpress (CCME.PK) is currently trading at $1.60, down 89.90% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

The CCME story is well-documented and I don't have to go into details again. The company lost its auditor, CFO, Chairman of the Audit Committee and independent directors through resignations in March and April, and has not hired any replacements since. It is unclear if the special committee that was formed on March 17 is still working on the internal investigation into the accounting matters, as the company has not updated the investment community in the past four months. CCME has been delisted from Nasdaq on May 19, 2011.

HQ Sustainable Maritime Industries (HQSM.PK) is currently trading at $0.24, down 94.97% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 9% (Extreme Risk).

HQSM's auditor could not confirm the cash balances in the company's bank accounts nor verify the existence of customers in China. In its resignation letter dated May 26, the auditor claimed HQSM's management resisted its efforts to address these issues and became "increasingly non-responsive, uncooperative and non-communicative." The company's account of what happened paints a different picture. As of July 1 the company has only one independent director left, all the others resigned, including the Chairman of the Audit Committee. The SEC has initiated a formal investigation into HQSM. On July 11 the stock was delisted from NYSE Amex to the pink sheets after having been halted since April.

NIVS IntelliMedia Technology (NIVS.PK) is currently trading at $0.35, down 84.52% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

In its resignation letter on March 24, the company's auditor, MaloneBailey, said it found "illegal acts involving the Company’s accounting records and bank statements and discrepancies in accounts receivable." NIVS managed to engage BDO China as its new auditor shortly after, but on May 14 they resigned as well, stating the company's inability to provide "certain critical financial related documents and records." Since May 19, Friedman is the company's independent auditor, we will see how long that lasts... The special committee that was formed to look into the accounting issues broke apart on July 11 when two directors, incl. the committee's chairman, the legal counsel, and the accounting advisors (Deloitte) all resigned or terminated their engagements. The company has since hired new directors and said it "intends to engage new counsel and forensic auditors to continue its work." The stock has been delisted from NYSE Amex on June 24 and is since trading on the pinks.

Puda Coal (PUDA) is halted since April 11. Last reported trade was at $6.00, but the stock will likely open significantly lower when trading resumes. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 6% (Extreme Risk).

Apparently, the chairman of Puda Coal stole almost the entire company from U.S. shareholders, sold half of it to Chinese investors, and pledged the other half as security for a loan at 14.5%(!). The company has basically admitted fraud by stating that "although the investigation is in its preliminary stages, evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings." The stock has been halted since April 11 and the company completely ignored the due date for its first quarterly report of 2011. PUDA's independent auditor for six years, Moore Stephens Hong Kong, resigned on July 7, which makes it very unlikely that the stock will reopen again on NYSE Amex.

ShengdaTech (SDTH.PK) is currently trading at $0.53, down 89.19% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 13% (Extreme Risk).

When ShengdaTech failed to timely file its annual report for 2010 the stock was halted by Nasdaq. Shortly after it came to light that SDTH's auditor, KPMG, found "serious accounting and operational issues," and informed the exchange of "deliberate and ongoing efforts of the company’s Chief Executive Officer and Acting Chief Financial Officer to obstruct an internal investigation into these matters." The Acting CFO resigned on April 21, followed by the auditor on April 29. KMPG was replaced by Marcum Bernstein & Pinchuk on June 9, however a final engagement is still pending satisfactory completion of Marcum's new client acceptance procedures. For the past six weeks no new developments regarding the status of investigation and auditor have been filed, and the stock has been delisted and is trading on the pink sheets since June 10, 2011.

Subaye (SBAY.PK) is currently trading at $0.49, down 95.02% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

In my opinion this is the most outrageous of all the Chinese frauds, it is almost comical. If you are interested in a bit of cheerful entertainment you really should dig into the Subaye story - it claimed to be an entertainment company after all. Subaye is currently at its third CFO since March, its CEO resigned in May, its auditor in April and hasn't been replaced since. The stock has been delisted on June 24, and is now trading on the pink sheets.

Just one snippet to illustrate all this craziness: Subaye's last official guidance, presented in December 2010, called for earnings per share of exactly $3.12 in FY2011. If the company were not blatantly lying, a P/E of 5 were justified and the stock would be worth at least $15, a level it reached briefly in January of the current year. Now the employment agreement with SBAY's newest CFO, Jacqueline Ng, dated June 1, guarantees her the following compensation: an annual salary of $60,000, a sign-on bonus of 150,000 shares, and a minimum annual bonus of 100,000 shares of common stock. That means CFO No.3 Miss Ng would receive stock worth at least $3.75 million additionally to her annual salary as compensation for her CFO duties, if the company's representation of its net profits and prospects would have any credibility. Even at the current stock price her compensation is outrageously high. She's not alone, though. In the same filing it was revealed that SBAY's new CEO, a German national who seems to be in the IR business and doing side-jobs like serving as honorary consul for the Republic of Belize in Germany, will receive the same 250,000 shares plus $80,000 annual salary.

Wonder Auto Technology (WATG) is halted since May 9. Last reported trade was at $5.42, but the stock will likely open significantly lower when trading resumes. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 26% (Extreme Risk).

When WATG failed to file its 2010 annual report, the company announced an internal investigation into reported accounting matters, incl. that it had engaged in several transactions without properly disclosing their related-party nature. Intermediate results led to announced restatements for fiscal years 2008, 2009 and 2010, and for the quarters ended March 31, June 30 and September 30, 2009 and 2010. This investigation was originally expected to conclude by the end of July, but that is now a very unlikely outcome. On July 12, both the CEO and CFO resigned from their positions without giving a reason. Wonder Auto's auditor, Big Four firm PricewaterhouseCoopers, is apparently still with the company. Trading in the Nasdaq-listed stock has been halted for ten weeks now, and at this point it is very unlikely that it will reopen on the big boards again.

Yuhe International (YUII.PK) is currently trading at $0.97, down 89.17% for the year. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 0% (Extreme Risk).

Chicken breeder Yuhe International claimed to have acquired 13 breeder farms from a competing business in 2009, but an investigatory report from Geoinvesting proved those claims wrong and the company was lying to investors. YUII's auditor resigned on June 17 due to "management’s misrepresentation and failure to disclose material facts surrounding certain acquisition transactions and off-balance sheet related party transactions." The stock was delisted from Nasdaq on July 21, and is since trading on the pink sheets.

Jiangbo Pharmaceuticals (JGBO) is halted since May 31. Last reported trade was at $3.08, but the stock will likely open significantly lower when trading resumes. The Trading China Tracker Score is UNDER REVIEW, the Trading China Safety Score is 14% (Extreme Risk).

The Securities and Exchange Commission subpoenaed the company on March 26 and Jiangbo's audit committee started an internal investigation of the issues raised by the SEC. Elsa Sung, Jiangbo's CFO, resigned on March 31. On June 6, the independent members of the Audit Committee jointly resigned, stating that JGBO's "chairman and members of his management team have exhibited repeatedly their unwillingness to cooperate in even the most basic requests," and - among other things - the investigation "raised serious concerns regarding the veracity or correctness of banking information provided by the company."

Michael Marks, former independent director and Chairman of JGBO's Audit Committee filed a very long (22 pages) and detailed account of the internal investigation with the SEC. If you are interested in the troubles of U.S.-listed Chinese companies, you should take the time to read the full letter. You will find real gems in there, such as the manager of Jiangbo's materials department refused to leave the employee wash room in order to avoid answering Ernst & Young's questions. Or that the law firm's fee was paid from a personal account of an individual who turned out to be Jiangbo's cashier - via internet banking - when Jiangbo previously told Ernst & Young that the company did not use and did not have access to internet banking.

The stock remains halted on Nasdaq and will likely get delisted soon. Anyone out there who still believes this company has almost $150 million cash on the bank?

This was a very long account of (likely) fraudulent Chinese stocks which blew up in the first half of 2011. But it is far from complete! I did not mention several other cases, including Longtop Financial (LFT), Duoyuan Global Water (DGW), or A-Power Energy (APWR), and there are many stocks with similar problems that never made it to the big boards and are still quoted on the bulletin boards or pink sheets.

China Tracker: New Features

Over the past four weeks we have added several new tools to the Trading China Tracker. The focus is on risks associated with investments in U.S.-listed Chinese stocks. It is absolutely crucial for any China investor to thoroughly assess the risks before making an investment decisions. These tools should work as a starting point for your research.

Safety/Risk Model

We have introduced a two-stage safety/risk model for U.S.-listed Chinese stocks. Stage One is based on publicly available information, Stage Two requires independent research and can not be automatized.

For every stock we are covering on Trading China, you can now find an additional score card for the Safety/Risk Model (Example: CVVT). All the data is compiled into a percentage score that indicates the safety level according to our algorithm. Please keep in mind that this is not meant to be the ultimate truth - it is based on Stage One of the model only - but it will provide a good starting point for your research into the validity of the reported financials, corporate governance issues, and the possibility of fraud.

The following data is compiled on this page and used to determine the safety score for this particular stock:

• Market Segment (Nasdaq, NYSE, Amex, OTC, Pink Sheets)
• Type of Going Public (Reverse Merger, IPO, Direct Offering, SPAC, etc.)
• IPO Lead Underwriter (if applicable)
• Auditor
• Auditor History and Trail (Dismissals, Resignations, Engagements)
• Effectiveness of Internal Controls (Management Assessment)
• Effectiveness of Internal Controls (Auditor Opinion)
• Senior Management Changes (past two years)
• CFO History and Trail (Dismissals, Resignations, Appointments)
• Ownership (Controlling Shareholder)
• Analyst Coverage (Quality of Coverage, Backing)
• Shareholder Dilution (past 12 months)
• Short Interest
• Account Receivables (Balance Sheet)
• Delinquency with periodical SEC Filings
• Reported Corporate Governance Issues (also Trading Halts)
• Recent Short Seller Attacks / Reports
• Detailed Fraud Accusations

The Safety Score is translated into a Safety Label which spans a range from "Extreme Risk" (Score under 30%), over "High Risk" (30% - 50%), "Moderate Risk" (50% - 75%), "Moderate Safety" (75% - 90%), to "High Safety" (Score over 90%). Ideally, all the stocks you want to invest your money in - as in "buy and hold" and contrary to short-term trades - should be labeled with "Moderate Safety" or higher. For all other names you are strongly advised to do your homework before taking any position. Please keep in mind that, with the exception of Account Receivables data, the safety score has nothing to do with reported financials.

From our coverage universe, the companies with the highest safety score are Ctrip.com International (CTRP), E-House (China) Holdings (EJ), and 3SBio Inc. (SSRX). A total of 24 Chinese stocks passed the Safety/Risk Test with a "High Safety" label, and another 20 names scored with "Moderate Safety". Among those 44 companies you will find only two that went public via Reverse Merger, Cogo Group (COGO) and American Oriental Bioengineering (AOB).

A total of 146 stocks failed the test with a "High Risk" or "Extreme Risk" label. The vast majority of them are Reverse Mergers or SPAC deals, but you will find a good number of regular IPOs in that group as well. The overall picture is terrifying. At the time of writing, nine companies do not have an auditor, and trading in 15 Chinese stocks is currently halted by the exchanges (not counting recently delisted CCME and CAGC). 37 companies have not filed their last quarterly or annual reports, some disappeared completely (CGDI, JADA), others filed a "going dark" Form 15 (GHNA, ENHD). I repeat, it is crucially important that you do your own research before taking a position in any of the "High Risk" or "Extreme Risk" stocks. If you don't have the time or means to do that, you should probably avoid this whole group of stocks.

A sortable table with all Safety/Risk scores has been added to the China Tracker.

Auditor Data

We have added tracker pages for all auditors of Chinese companies in the Trading China database. You can find information of all past and current clients of this auditor, if the firm was dismissed or resigned, the exact dates of the engagement/dismissal, and a screen of all related companies with their year-to-date performance. These tracker pages can be accessed from the auditor trails of each individual company within the China Tracker (Example: KPMG).

Another new screen is a chronological list of all auditor changes, starting with the most recent ones. The data is taken from Form 8-K or Form 6-K SEC filings only, not from press releases or other sources. When you click through the pages of this screen you will find that the number of auditor resignations has exploded since the start of 2011.

A similar screen is available for Chief Financial Officers.

Delayed 10-K Filings

Here is a little summary of Chinese companies that ran into problems with their full-year audit. The deadline for non-accelerated filers ends on March 31, so I do expect many more companies to file for an extension in the next seven days.

China Agritech (CAGC) was last trading at $6.25, down 49.07% for the year, and down 62.35% from the November 9 high at $16.60. The Trading China Tracker Score is UNDER REVIEW.

CAGC fired its auditor (Ernst & Young) earlier this month, and without an auditor it is impossible that we will see a 10-K filing before the end of the extended deadline. The stock is currently halted and there is a good chance that it won't reopen on Nasdaq.

"The Company could not complete the filing of its Annual Report on Form 10-K for the year ended December 31, 2010 due to a delay in obtaining and compiling information required to be included in the Company's Form 10-K, which delay could not be eliminated by the Company without unreasonable effort and expense. In addition, the Company has dismissed its auditors and is in the process of finding a new independent registered public accounting firm to audit the financial statements for the year ended December 31, 2010."

China Automotive Systems (CAAS) is currently trading at $7.69, down 43.54% for the year, and down 57.24% from the October 13 high at $17.98. The Trading China Tracker Score is 10 (Buy).

The company engaged PricewaterhouseCoopers in December as their previous auditor, Schwartz Levitsky Feldman, resigned. Now the Annual Report is delayed, as the company has to make a bunch of restatements. According to the filing, China Automotive expects to complete the report "as soon as practicable", but not within the standard 15-day extension period.

"The Company announced that it expects to restate its previously issued financial statements for fiscal year 2009 and the first three quarters of fiscal year 2010 to reflect non-cash gains or losses related to the accounting treatment for the Company's convertible notes issued on February 15, 2008 based on the guidance outlined in Accounting Standard Codification (ASC) 815. The Company undertook a review to determine the total amount of the errors and the accounting periods in which the errors occurred. The Company's review was overseen by the audit committee of the board of directors of the Company. The Audit Committee concluded on March 12, 2011 that the Company's previously issued audited consolidated financial statements as of and for the fiscal year ended December 31, 2009 and unaudited interim consolidated financial statements as of and for the quarterly periods ended March 31, June 30 and September 30, 2010 should no longer be relied upon because of these errors in the financial statements. The Company's board of directors agreed with the Audit Committee's conclusions. The Company intends to restate these financial statements. Because of the nature and timing of the review, the Company is unable to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2010 with the SEC on March 16, 2011, the prescribed due date. The Company does not expect that such filing will be made within the extension period provided for under Rule 12b-25. The delay could not be eliminated without unreasonable effort or expense. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 will be filed as soon as practicable after the Company has completed the restatement process.

China Biologic Products (CBPO) is currently trading at $15.50, down 5.44% for the year, and down 17.25% from the October 6 high at $18.73. The Trading China Tracker Score is 4 (Hold).

CBPO is one of those companies that upgraded auditors in December, from tainted (RINO, CHME) firm Frazer Frost to Big Four firm KPMG. The delay is not surprising, given that most former Frazer Frost clients came under heavy pressure, and KMPG hasn't done any audit work on CBPO before. The stock held up very well in the recent China small caps turmoil, but the short interest in CBPO is very high, many people seem to bet on KMPG not signing off on the report. I would definitely wait for the 10-K - which should be filed by the end of March - and check if it comes out clean (internal controls).

"The Registrant is unable to file its Form 10-K within the prescribed time period without unreasonable effort or expense due to the fact that it has not completed the process of preparing and integrating its operating and financial information into statements for the fiscal year ended December 31, 2010. The Registrant anticipates that it will file its Form 10-K no later than the fifteenth calendar day following the prescribed due date, as permitted by Exchange Act Rule 12b-25."

China MediaExpress (CCME) was last trading at $11.88, down 25.01% for the year, and down 50.44% from the January 28 high at $23.97. The Trading China Tracker Score is UNDER REVIEW.

The CCME story is well-known. The company's auditor resigned, and an internal investigation has commenced. The allegations are very serious and a best-case scenario would be a set of restatements that leaves the company with a meaningful cash position and a sizable business. It is unlikely that CCME will be able to engage a new auditor before the investigation has concluded, therefore a 10-K filing should probably not be expected before summer. We will see if Nasdaq allows a months-long trading halt, or if the stock will re-open for trading on the pink sheets.

"The Company cannot at this time estimate when the internal investigation of the relevant issues will conclude. The Company intends to file the Form 10-K as soon as reasonably practicable."

China Medicine (CHME) was last trading at $1.16, down 33.34% for the year, and down 56.23% from the November 10 high at $2.65. The Trading China Tracker Score is -1 (Sell).

CHME announced last night that "certain accounting and reporting errors were identified with respect to improper activities by certain employees." This will result in numerous restatements, and the upcoming form 10-K will be delayed for probably a very long time. I would avoid this name at all cost until we know more about what's going on there.

"As previously disclosed in the Current Report on Form 8-K filed by China Medicine Corporation with the Securities and Exchange Commission (SEC) on March 23, 2011, the Company announced that it expects to restate its previously issued financial statements for fiscal years 2008 and 2009, and the quarters within the fiscal years 2008, 2009 and 2010 in order to correct certain accounting and reporting errors that impact the accuracy of the previously issued financial statements (as defined below). The Board of Directors of the Company, after consultation with and upon recommendation of the management of the Company and its Audit Committee, concluded that the Company's previously issued financial statements contained in its Annual Report on Form 10-K for the fiscal years 2008 and 2009, and the Quarterly Reports on Form 10-Q for the periods within the fiscal years 2008, 2009 and 2010 should no longer be relied upon. The Company intends to restate the previously issued financial statements. Because of the nature and timing of the review, the Company will be unable to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2010 with the SEC by March 31, 2011, the prescribed due date. The Company does not expect that such filing will be made within the extension period provided for under Rule 12b-25 of the Securities Exchange Act of 1934, as amended. The delay could not be eliminated without unreasonable effort or expense. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 will be filed as soon as practicable after the Company has completed the restatement process."

Feihe International (ADY) is currently trading at $9.63, down 9.50% for the year, and down 30.72% from the November 8 high at $13.90. The Trading China Tracker Score is -2 (Sell).

Feihe has already announced full-year numbers in a press release, but the 10-K filing is still missing. The company expects to file its annual report by the end of the 15-day extension, or by March 31, 2011.

"The registrant is unable to file its Annual Report on Form 10-K for the year ended December 31, 2010, within the prescribed time period because the information required for an accurate and full completion of the report, including but not limited to the financial statements that form a part thereof, could not be provided within the prescribed time period without unreasonable effort or expense. The registrant expects to file its Annual Report on Form 10-K as soon as practicable, and in no event later than the fifteenth calendar day following the prescribed due date."

Fuqi International (FUQI) is currently trading at $3.29, down 48.44% for the year, and down 61.16% from the October 11 high at $8.47. The Trading China Tracker Score is UNDER REVIEW.

The last quarterly or annual report that we have seen from FUQI was filed on November 9, 2009. Nasdaq has granted the company several extensions, the last of which expires on March 28, 2011. By that date the Company must file with the SEC all delayed reports and any required restatements. It seems very unlikely that FUQI can comply with this request, which means that the stock might face a delisting from Nasdaq as early as next week.

"The Registrant has also been unable to complete and file its Annual Report on Form 10-K for the year ended December 31, 2009 due to the time and effort required by the Registrant to conduct a review and analysis of the accounting errors, the impact of the accounting errors on its condensed consolidated financial statements, and preparation of the amended Quarterly Reports on Form 10-Q/A to present the Restatements, in addition to the time and effort required to complete the audit for the year ended December 31, 2009. In addition, due to the foregoing, the Registrant has been unable to prepare and file its Quarterly Report on Form 10-Q for the three months ended March 31, 2010, its Quarterly Report on Form 10-Q for the three and six months ended June 30, 2010, and its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2010, by their respective due dates. Due to additional time and efforts expended in an attempt to complete the Restatements and prepare and file the annual report for the year ended December 31, 2009 and quarterly reports for March 31, 2010, June 30, 2010, and September 30, 2010, the Registrant is unable to file its Annual Report on Form 10-K for the year ended December 31, 2010. The Registrant will file its Annual Report on Form 10-K for the year ended December 31, 2010 as soon as it is able; however, the Registrant is not able to provide a reasonable estimate as to such filing at this time, which will not occur within the fifteenth calendar day after the prescribed due date for such report."

Fushi Copperweld (FSIN) is currently trading at $8.73, down 1.69% for the year, and down 22.47% from the November 3 high at $8.47. The Trading China Tracker Score is 13 (Strong Buy).

Similar to CBPO, Fushi Copperweld is also a former Frazer Frost client which changed auditors to KPMG (January 24), and now has to file for a delayed Annual Report. Short interest is high and as the stock is still trading at January levels, it has room to the downside if the 10-K doesn't come out clean or if the delay is longer than currently expected. The company announced preliminary results on March 11, but it is prudent to wait for the audited numbers with the Annual Report.

"In the process of preparing our financial statements for the year ended December 31, 2010, management reevaluated the application of GAAP in certain past accounting treatments, which are non-cash and non-operating items. While it is unfortunate that these reconsiderations are causing a delay in our filing, we stress the fact that these are all non-cash adjustments related to various corporate-level account treatments and will not materially affect our non-GAAP, core operating results such as revenue, gross profit and operating income. The Company plans to file its Form 10-K for the year ended December 31, 2010 and publish financial fourth quarter and full year results as soon as practicable following the completion of this reevaluation. However, due to the time needed, we are not in a position to file our 10-K within the required time period."

Home System Group (HSYT) is currently trading at $0.14, down 94.40% for the year, and down 96.00% from the October 18 high at $3.50. The Trading China Tracker Score is 9 (Buy).

HSYT filed for a 10-K extension a whole two weeks before the due date, which is unusual at best. The company gave only the standard explanation without going into detail: "Certain financial and other information necessary for an accurate and full completion of the Form 10-K could not be provided within the prescribed time period without unreasonable effort or expense." With all these uncertainties, HSYT is for gamblers only at this point.

HQ Sustainable Maritime (HQS) is currently trading at $3.20, down 32.92% for the year, and down 36.89% from the January 7 high at $5.07. The Trading China Tracker Score is 6 (Hold).

"HQ Sustainable Maritime Industries is unable to file its Report on Form 10-K for the year ended December 31, 2010 within the prescribed time period due to delays in compiling the information for the preparation of the financial statements. The Registrant fully expects to be able to file within the additional time allowed by this form."

Kingold Jewelry (KGJI) is currently trading at $2.55, down 37.50% for the year, and down 75.00% from the October 6 high at $10.00. The Trading China Tracker Score is 9 (Buy).

"During the process of evaluating its internal control over financial reporting and completing the preparation of its consolidated financial statements, the Company plans to amend and restate its third quarter 2010 financials to reflect solely a non-cash stock compensation expense resulting from the issuance of 100,000 shares of restricted common stock in December 2010 pursuant to the terms of a pre-existing consulting contract. In connection with this adjustment, the Company has engaged a third party valuation firm to assist the Company and its auditors in properly valuing the compensation expense. It is expected that the final results of the valuation report will be available no later than March 25, 2011. The impact of this non-cash adjustment on the Company's net income is expected to be not more than $0.02 per share for the three and nine months ended September 30, 2010. As a result, the Company is unable to finalize its financial statements for the year ended December 31, 2010 until such results have been obtained. In connection with the Company's evaluation of its internal control over financial reporting, the Company has identified some control issues that it is analyzing to determine if they rise to the level of material weaknesses that would require disclosure in its Form 10-K for the year ended December 31, 2010."

ShengdaTech (SDTH) was last trading at $3.55, down 27.54% for the year, and down 44.95% from the November 8 high at $6.45. The Trading China Tracker Score is UNDER REVIEW.

SDTH announced an investigation into "potentially serious" issues with its financials on March 15, and trading has been halted by Nasdaq shortly after. It could take months for SDTH to complete this investigation, and the wording of the announcement suggests that restatements are necessary.

"On March 15, 2011, Shengdatech announced that it had appointed a special committee of the Board of Directors to investigate potentially serious discrepancies and unexplained issues relating to the Company and its subsidiaries' financial records identified by the Company's auditors in the course of their audit of the consolidated financial statements for the fiscal year ended December 31, 2010. The special committee is composed of the independent directors comprising the Company's audit committee. The audit committee retained O'Melveny & Myers LLP as independent outside counsel, which has initiated an internal investigation. The outside counsel to the committee has notified the Staff of the Securities and Exchange Commission of the commencement of the internal investigation. Given that the investigation only recently commenced, the Company cannot predict at this time whether that investigation will require any adjustments to its financial statements, and if so whether such adjustments will be material. Due to the pendency of the internal investigation, the Company will not be able to file its Annual Report on Form 10-K in a timely manner. The Company cannot at this time estimate when the internal investigation of the relevant issues will conclude. The Company intends to file the Form 10-K as soon as reasonably practicable."

Wonder Auto Technology (WATG) is currently trading at $5.79, down 23.21% for the year, and down 49.66% from the November 9 high at $11.50. The Trading China Tracker Score is UNDER REVIEW.

And another company that upgraded auditors to Big Four (PricewaterhouseCoopers) recently, and now faces a possibly long delay with their 10-K filing. Restatements for its financial statements all the way back to 2008 are to be expected, and WATG already said that they most likely won't make the extended deadline at the end of this month.

"As previously announced on February 23, 2011, in connection with the preparation of its consolidated financial statements for the fiscal year ended December 31, 2010, Wonder Auto Technology concluded, that its financial statements as of and for the years ended December 31, 2008 and 2009, included in its Annual Report on Form 10-K for the year ended December 31, 2009, as well as the financial statements included in its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30 during each of the years 2008 and 2009 should no longer be relied upon due to a cutoff error regarding timing of revenue in such periods. Additionally, the Company is still evaluating the impact of the cutoff-errors on its financial results for the year ended December 31, 2010 and on its internal control over financial reporting as of December 31, 2010. As a result, the Company is unable to complete its Form 10-K within the prescribed time period. The Company remains committed to completing its Form 10-K at the earliest possible time, but does not currently anticipate its completion within the fifteen calendars following the prescribed due date."

Portfolio Changes - March 18, 2011

Agfeed Industries (FEED) is currently trading at $1.97, down 33.00% for the year, and down 42.74% from the November 9 high at $3.44. The Trading China Tracker Score is -5 (Sell).

Since we added FEED to our portfolio (November 5, 2010), the company posted disastrous 2010 results. Large write-downs of its Chinese hog farms led to a Fourth Quarter loss of 42 cents a share, much worse than expected. FEED slashed its workforce by nine percent and did not give FY 2011 guidance. Related to the unacceptable performance, the company saw a mass exodus of executives in February. Both the Chairman of the Board and the President/CEO resigned from their positions.

We are closing our position in the China Model Portfolio for a loss of 37.86% or $1,892. We are no longer betting on FEED being able to turn its business around in the foreseeable future. Additionally the stock did not pass our initial safety/risk test in regards of corporate governance, credibility and investor protection.

China Housing & Land Development (CHLN) is currently trading at $2.14, down 21.90% for the year, and down 41.21% from the January 7 high at $3.64. The Trading China Tracker Score is 8 (Buy).

China Housing announced fourth quarter and full year earnings on March 14, both pretty much in line with expectations. Form 10-K for 2010 has been filed, and CHLN's Canadian auditor MSCM LLP attested the company effective internal control over financial reporting as of December 31, 2010. Guidance for 2011 has been issued, calling for about 50% revenue growth and a 140%-179% increase for total contract sales over 2010 numbers. Although we see room for improvement, the stock passed our initial safety/risk test, and we are keeping the position in our portfolio with a target price of 6x 2011 earnings ($0.70) or $4.20.

China MediaExpress (CCME) is currently halted. Last available quote was $11.88, down 25.01% for the year, and down 50.44% from the January 28 high at $23.07. The Trading China Tracker Score is UNDER REVIEW.

Trading in CCME will likely stay halted for a while, it is unlikely that the stock will be allowed to reopen on Nasdaq with the revelations of last week. We will sell the shares in our portfolio at the close of the first Friday the stock is trading again, as the rules for the portfolio do not allow us to liquidate the position at any different time. I would expect CCME to follow similar trading patterns as RINO when it reopens: a sharp drop at the open to sub-$5 levels, followed by a bounce driven by short covering and a slow fade from there on. It is very unlikely that long investors will see significant positive developments from here on, given the magnitude of the disaster that was unfolding last week.

China RuiTai International (CRUI) is currently trading at $0.55, down 45.00% for the year and from the February 2 high at $1.00. The Trading China Tracker Score is 13 (Strong Buy).

RuiTai is set to report full year numbers for 2010 by the end of March. Based on reported financials the stock is extremely cheap, but in the current environment it is prudent to wait for the 10-K filing before making an investment decision. We will apply our safety/risk test when the annual report is available, then review our portfolio position.

China XD Plastics (CXDC) is currently trading at $6.14, up 13.07% for the year, and down 16.47% from the February 17 high at $7.35. The Trading China Tracker Score is 11 (Buy).

China XD is also scheduled with their next annual report on or before March 31, 2011. The stock is holding up very well within the group of small cap Chinese companies, still posting nice gains of more than 13% for the year. Our initial safety/risk test came out inconclusive, while price action, institutional support, and management continuity is in favor of the company, we see risks in the ownership structure and recent lack of updates from management. We will review our position in early April when we should have a new 10-K filing.

ChinaCast Education (CAST) is currently trading at $5.99, down 22.81% for the year, and down 25.04% from the November 9 high at $7.99. The Trading China Tracker Score is 5 (Hold).

ChinaCast reported strong earnings last week, and guided for 21-23% revenue growth in FY 2011. The stock came under heavy pressure early last week, but recovered nicely with a 12% gain on Friday alone. The company announced a large $50 million buyback program for the next 12 months, and management seems committed to creating shareholder value. Our safety/risk test came back positive with Deloitte Touche Tohmatsu (CCME's auditor) signing off on the financials (10-K filing). However, it should be noted that Deloitte identified material weaknesses and has expressed the opinion that CAST has not maintained effective internal control over financial reporting as of December 31, 2010. Those weaknesses are a "lack of sufficient skilled resources in the finance team to meet the demands of rapidly expanded businesses," and a "lack of contemporaneous documentation of certain decisions made by the Board of Directors." We believe that CAST should be able to address these issues successfully.

I will complete the review of our China Model Portfolio positions next week, when I will hopefully have a bit more time to do the write-up. But as we can only make changes to the portfolio at Friday's close, the following positions will all be closed now:

Agfeed Industries (FEED)
Jade Art Group (JADA)
New Energy Systems (NEWN)
Sino Agro Food (SIAF)
U.S. China Mining Group (SGZH)

Chinese Fraud is Widespread

The downfall of China MediaExpress (CCME) has changed the landscape of U.S.-listed Chinese stocks forever. The events of last week, including developments at China Agritech (CAGC), Subaye (SBAY), China Integrated Energy (CBEH) and ShengdaTech (SDTH) prove that Chinese fraud on U.S. exchanges is much more widespread than I originally thought. Numerous trading halts initiated by the exchanges, and more details about the SEC investigation in Chinese reverse mergers, deal-makers and investment banks involved show that U.S. regulators are stepping up to address the issue. Even though we have always advised extreme caution when investing in this space, we have clearly been too optimistic going forward, put too much weight on auditor integrity (incl. Big Four) and third party due diligence (analysts, institutional investors).

China MediaExpress

The battleground for longs versus shorts was China MediaExpress, a high profile self-proclaimed leader in the booming Chinese advertising industry that reported stellar quarterly results throughout 2010. The company was considered among the safest of the RTO/SPAC stocks based on a large number of indicators which supported the credibility of the company and its reported financials. CCME had a Big Four auditor (Deloitte Touche Tohmatsu) since 2009, a large institutional investor (CV Starr) that even increased its position in the stock last fall, consistently bullish analyst reports (Northland called it its Top Pick 2011, Global Hunter repeatedly released detailed research and raised price targets), and supposedly $170 million cash on its balance sheet. The company announced a share buyback program (although never executed) and promised to pay a dividend this spring.

Despite all these bullish signs, short interest in the stock kept rising to staggering levels, even before Muddy Waters and Citron Research released their short reports. The warning signs were always there, both CCME longs and shorts were engaged in a fierce battle over details, but in the end this was a battle between short sellers, who wanted to profit from a collapsing share price, and the reputation of Deloitte, Starr, Global Hunter and other well-known names in the industry, backed by magnificent financial reports. Longs could easily argue that jumping on the Deloitte-Starr-GH bandwagon would be a much safer bet than following the short argument that all those big names got it totally wrong.

Now the battle is over. Deloitte resigned as CCME's auditor. Dorothy Dong, the representative of CV Starr on China MediaExpress's Board of Directors resigned as well, and Global Hunter's senior analyst, Ping Luo, is no longer working for the firm. CCME's stock is halted indefinitely, without an auditor and CFO - Jacky Lam resigned as well - it is unclear when (if ever) we see another 10-K from the company, and the fallout of this scandal sent the average Chinese RTO stock down another 20% last week. Dorothy Dong's resignation letter gives us a good account of what happened with China MediaExpress:

As you know, numerous allegations of a serious nature relating to the conduct of certain members of CCME's management (and that of its subsidiaries) have come to light in the past several weeks. Specifically, by letter dated 3 March 2011, Deloitte Touche Tohmatsu issued a letter to CCME's Audit Committee detailing numerous irregularities it encountered during its audit of CCME, including in particular, irregularities concerning the bank account balances for CCME's PRC subsidiaries.

Subsequently, by letter dated 11 March 2011 to the Audit Committee and the Board of Directors of CCME, Deloitte resigned as auditor of CCME, citing "no tangible process" had been made with respect to the issues raised in its 3 March 2011 letter, and stating that it had "lost confidence in the representations of management (which underpin any audit) ... and reliable financial reporting."

What do we learn from this? CCME's cash balance is most likely massively overstated, and with that the likelihood that we have seen correct financial quarterly reports for 2010 is very low, as most of the cash is supposed to come from operating cash inflows last year ($30 million in Q3/2010 alone). When Deloitte now speaks of numerous problems "of a serious nature", it heavily devalues the quality of its own work over the past 16 months, and especially also the work of Starr and all the analysts we were supposed to rely on. The most plausible scenario is that CCME's founder, majority owner, Chairman and CEO Zheng Cheng, was deliberately defrauding investors with the sole purpose to enrich himself.

China Agritech

Adding to this scandal is the story that is unfolding around China Agritech (CAGC), another Chinese reverse merger that got heavily attacked by short sellers. The stock was halted by NASDAQ on March 14 before the open, and NASDAQ said trading will remain halted "until China Agritech has fully satisfied NASDAQ's request for additional information." More details came to light after the halt, and all of them point to what I would call highly deceptive behaviour by the company:

On March 13, China Agritech issued a press release, announcing a delayed 10-K filing due to the formation of a special committee in order to "investigate certain allegations made by third parties with respect to the Company and certain related issues." The next day, right before the stock was halted, CAGC announced the dismissal of Ernst & Young Hua Ming (another Big Four) as auditor, based on the management questioning Ernst & Young's independence and "in order to give the public fair and truthful financial results."

The real reasons for both the formation of the special committee and the "dismissal" of Ernst & Young were hidden from investors. In fact it turned out that the "third parties" making allegations included Ernst & Young, and that the auditor threatened to resign if the company wouldn't correct its deceptive press releases. An 8-K form, filed on March 18, tells us a more detailed story of what has really happened at CAGC:

"On March 13, 2011, the Company announced that it formed a special committee of its board in order to investigate certain allegations made by third parties with respect to the Company and certain related issues and that the Company would not be able to meet the its Form 10-K filing deadline. E&Y informed the Company that, in its view, there was a material omission of fact from the Company's press release relating to the formation of the special committee, as the press release did not specifically disclose that the independent investigation was related to issues which were identified during the performance of the Company's year end audit. E&Y further advised the Company's representatives that E&Y may resign as the Company's auditors if a revised press release was not issued. The Company, however, believed that the specific disclosure in the press release about the investigation combined with the disclosure of the indefinite delay in the 10-K filing, was a clear indication to the market that issues had arisen in connection with the annual audit which would have to be addressed.

E&Y informed the Company that the issues identified in performing their audit may, if further investigated, have adverse implications for the financial statements covering the three quarterly reports filed by the Company on Form 10-Q during 2010, and advised the Audit Committee to inform the predecessor auditors of the issues identified, so that they can assess the impact on prior financial reports."

Immediate Conclusion

Last week was a game changer, and right now it is no longer possible to reasonably contain the risks when investing in Chinese small caps, especially reverse mergers and blank-check deals. The number of fraudulent companies in this space is much higher than a common sense approach would even have considered possible - maybe even higher than 50% - and for a retail investor those risks are just too high here. The only stocks we should consider for an investment, at any price, are those with a clean 2010 full-year audit backed by a tier one accounting firm. And even those are not free of fraud-risk.

The shake-out will continue, we will see more Chinese RTO stocks imploding in the next few weeks. And, most importantly, the magnitude of fraud will force U.S. regulators to act swiftly. We have seen as many as five Chinese RTO stocks with an exchange-forced trading halt last week, and this trend will continue. Wall Street can not afford to be seen as a facilitator of systemic Chinese securities fraud, and investors in those stocks are simply not protected.

We will make the necessary adjustments to our China Model Portfolio later today.

Re-Entering CCME

China MediaExpress (CCME) is currently trading at $15.52, up 46.41% for the year and down 30.41% from its November 8 high at $22.30. The Trading China Tracker Score is 12 (Strong Buy).

We are re-adding China MediaExpress to the Trading China Model Portfolio at Friday's close. We have previously sold this stock on November 6th at $19.61 for a 131.25% gain. CCME has a small float of just 11.53 million shares, and as of November 30 the recorded short interest was a staggering 41% of the float.

On December 9th, CCME CFO Jacky Lam bought 100,000 shares at $15. This is significant news that has not yet been digested properly by the market. A major vote of confidence by the one insider that should have the best idea about CCME's future performance. We are setting a price target of $25 (6-12 months).

China Model Portfolio Sharply Higher

What a beautiful run it has been for our China Model Portfolio in the last six weeks. The portfolio value is up by 44.34% since September 24th, and the sentiment for China stocks couldn't be better right now. Several of our portfolio positions have reached the price targets we have set, so we are making a couple of changes this weekend.

Please remember that the model portfolio is designed for long-term oriented value investors, set up to be as transparent as possible, and transactions are allowed only on the weekends at Friday's close. Contrary to many other model portfolios out there, we do not claim to have hit the bottom or top of a move, and transactions can be easily reviewed and modeled into a real portfolio. In theory the performance of our China portfolio should be lagging those that can react on intra-week news, price movements, earnings reports and momentum, so we are quite proud of the performance so far.

Closing Positions

Charm Communications (CHRM) is currently trading at $12.23, up 28.73% from the IPO price and down 2.09% from its November 4 high at $12.49. The Trading China Tracker Score is 5 (Hold).

Charm has reached our target price of $12.00 last week and we are closing the position here for a gain of 46.64% or $2,330. While I still believe that the company has a very bright future, the recent price appreciation has lowered the China Tracker Score from 12 (BUY) to 5 (HOLD) and we are locking in the profits here.

China MediaExpress (CCME) is currently trading at $19.61, up 85.00% for the year and down 2.44% from its November 4 high at $14.79. The Trading China Tracker Score is 12 (Strong Buy).

CCME has also reached our target price ($20.00) last week. This has worked out much faster than expected. China MediaExpress is scheduled to report Third Quarter earnings on Monday before the open, what is widely expected to be a very good report. However, as our price target has been reached, we are closing the position here for a gain of 131.25% or $6,555.

Longwei Petroleum (LPH) is currently trading at $3.50, up 29.63% for the year and down 1.13% from its November 5 high at $3.54. The Trading China Tracker Score is 7 (Hold).

Longwei has been doing very well since its uplisting and the stock reached our price target last week, even closed at new highs on Friday. There is a good chance that LPH can establish a new trading range above the $3 mark now, but we are locking in gains here and closing the position for a gain of 76.77% or $3,838.

Tianli Agritech (OINK) is currently trading at $7.73, up 28.83% from the IPO price and down 4.93% from its November 5 high at $8.13. The Trading China Tracker Score is 8 (Buy).

OINK is the second stock in our model portfolio that established new all-time highs on Friday. I believe it has further upside from here, but as we can make changes to our portfolio positions only on the weekends, we will stick with our initial price target ($7.50), that has been surpassed now. We are closing the position here for a gain of 105.58% or $5,280.

New Additions

SinoHub (SIHI) is currently trading at $2.42, down 39.50% for the year and down 25.77% from its April 1 high at $3.26. The Trading China Tracker Score is 4 (Hold).

SinoHub is expanding its virtual contract manufacturing to serve mobile phone distributors in emerging markets outside of China. We do like the stock here because the prospects for FY 2011 are bright. SIHI is currently followed by 4 analysts. All 4 give the stock a positive rating, and the average price target is 5.25, which implies 116.94% upside from current price. Rodman & Renshaw raised their estimates and price target ($7.00) in late October. The stock is currently trading at 2010e and 2011e P/E of 4.4 and 3.5, respectively.

Agfeed Industries (FEED) is currently trading at $3.17, down 36.60% for the year and down 34.64% from its April 14 high at $4.85. The Trading China Tracker Score is -5 (Sell).

Agfeed is a Chinese hog breeder and producer of animal feed that came under pressure as severe floods led to the loss of over 16,000 live animals in the Second Quarter. Thus, results for the first half of 2010 were disastrous and the Trading China Score is currently at negative five, or Sell. But this could be an excellent turnaround play for several reasons.

Impact of the natural disasters will be fading. Peers in the Chinese pork industry like OINK and HOGS have been performing very well, indicating positive developments in the industry. Agfeed said its revenue base will nearly double in connection with the M2P2 acquisition. And the company plans to carve out its animal feed segment soon and has already filed for an IPO with the SEC. This will very likely unlock value for shareholders.

Rodman & Renshaw sees fully diluting EPS climbing from a measly $0.02 in 2010 to $0.59 in 2011 and $1.03 in 2012. The firm has a price target of $7 on the stock and notes that this target "does not include the impact of additional production from the five western style farms being constructed in Dahua and Xinyu." All in all a very favorable risk-reward ratio here, so we are adding FEED to our model portfolio with a price target of $6.00 based on 6x 2012e EPS.

Jade Art Group (JADA) is currently trading at $0.41, down 39.73% for the year and down 62.40% from its April 5 high at $1.09. The Trading China Tracker Score is 16 (Strong Buy).

Jade Art Group is a producer of raw jade that wants to expand into the retail business. I believe such a move would be very positive as the market for luxury goods is expected to see strong growth in the years to come, with the Chinese consumer having more and more money to spend. JADA has been lagging all moves in the China small caps space and is still trading at a P/E of 3.4 with 45% of its market value in cash. I expect the traditionally strong Q3 earnings report to serve as a trigger for a higher share price.

A Look at Short Interest

With all the chatter about short sellers attacking small cap Chinese stocks in recent weeks, it is probably a good idea to look at the actual short interest data from Nasdaq, Nyse and Amex. I don't have to explain much here, the numbers should speak for themselves.

Small-Cap China Stocks with the Highest Short Interest


China MediaExpress (CCME) is on a fast and steady rise to the top of this table. Short interest has increased from 900,878 (10.1% of float) on June 15, via 1,707,333 (19.2%) on July 15 and 2,467,724 (27.8%) on August 13, to a record 3,311,233 (37.3%) this month.

Largest Increase in the Last Two Weeks


Highest Short Interest by Days to Cover


Short interest data from FactSet Research Systems; WSJ Market Data Group; Wall Street Journal

Don't be afraid!

The last time I checked, the average P/E-ratio for the S&P 500 was in the 16-17 range, and the closest comparable in mainland China, the Shanghai Composite, sported a P/E of 19-20. The GDP growth rate for China is safely in the 9-11% range compared with just 3-3.5% in the United States.

Now here's a special offer from Indian Summer Sale 2010 on the U.S. stock markets: you can invest in companies with 3-5x higher growth rates than Chinese average at a 75-90% discount to Chinese valuations. How is that even possible, you find asking yourself, what's the catch? And the answer is simply that it is supply and demand that determines the price of any type of goods, and demand for U.S.-listed Chinese stocks is close to a historic low.

Do we really believe that most of the Chinese stocks on U.S. exchanges are frauds? That all the audited financial reports are fake, reported numbers with the SEC overstated, most of the companies don't have an actual business and we were all fooled by a bunch of criminals just trying to steal our hard-earned money? Yes, there are huge transparency issues in the sector, undoubtedly also a few cases of blatant fraud, but - come on - many or most companies should be fraudulent in one way or the other? All the auditors and investment bankers should have been fooled, been ignorant or even conspiring?

As long as money is involved there will always be corruption, fraud and greed. There will be a new Arthur Anderson, WorldCom, Enron or SpongeTech, uncovered maybe as early as tomorrow. And yes, the risk with emerging market stocks is probably higher than with European or American companies, being it just for the language hurdles, corporate culture differences, and transparency issues involved. Investing in small cap China stocks will always be one of the more speculative and higher risk endeavors. But as a sophisticated China investor you might want to clear your head from all the chatter in the past few months and use some common sense to evaluate the situation.

Here's my take: money will undoubtedly return into this sector. Being it next week, next months or next spring, we don't know that yet but does it really matter? The months-long sell-off in U.S.-listed China stocks has created unreasonable or even ridiculous valuations for many highly profitable high-growth companies, and the market will recognize it as soon as the sentiment changes and big money comes back.

Here are 20 stocks that look interesting at their current levels. I will add them all as equally weighted positions to a China Model Portfolio with an initial time-frame of six to twelve months. All those stocks deserve a deeper look, it's time for your own quality due diligence right now when nobody else wants anything to do with small cap China stocks.



China Redstone Group (CGPI) is currently trading at $3.05, down 12.68% for the year and down 53.79% from its April 14 high at $6.60. The Trading China Tracker Score is 9 (Buy).

China Redstone is a cemetery developer in the Chongqing area in Western China. The company was listed via reverse merger in February this year and is actively working on uplisting to a senior exchange. Redstone announced their FY 2011 (ends March 31st) guidance in an investor presentation this month, looking for EPS of $1.45 based on 13.4 million shares. The stock is currently trading with a P/E-ratio of 2.10.

Renhuang Pharmaceuticals (CBP) is currently trading at $1.44, up 46.93% for the year and down 52.00% from its April 9 high at $3.00. The Trading China Tracker Score is 19 (Strong Buy).

Renhuang's main products are botanical anti-depressants based on Siberian Ginseng. The company recently reaffirmed its 2010 guidance of adjusted net income between $18.6 and $18.9 million and stressed that "fourth quarter sales and net income are expected to exhibit strong growth, as it is historically our outstanding quarter with peak sales primarily driven by the beginning of the flu season." The stock is currently trading with a P/E-ratio of 2.88.

China MediaExpress (CCME) is currently trading at $8.48, down 20.00% for the year and down 42.67% from its March 24 high at $14.79. The Trading China Tracker Score is 17 (Strong Buy).

CCME is the television advertising operator on inter-city and airport express buses in China. The stock is currently followed by 2 analysts, both give the stock a positive rating. The average price target is 23.00, which implies 171.22% upside from current price. More about China MediaExpress in a recent article on the Trading China blog.

China Housing & Land Development (CHLN) is currently trading at $2.02, down 51.09% for the year and down 56.19% from its March 9 high at $4.61. The Trading China Tracker Score is 15 (Strong Buy).

China Housing is a property developer in the Xi'an area in central China. Most real estate stocks have been hit by new government policies leading to purchase hesitation in the market, and CHLN had to guide down revenue projections for the year. However, the stock seems to have bottomed now and is currently trading below book value close to cash level.

Changda International (CIHD) is currently trading at $0.42, down 86.67% for the year and down 85.96% from its February 1 high at $2.99. The Trading China Tracker Score is 14 (Strong Buy).

Changda is a chemical and fertilizer company which recently announced a partnership with Sinochem, one of Chinas biggest chemical companies. The company has already applied to list its stock on NYSE Amex. The stock is under pressure from the open $35 million offering, money the company needs to complete their Heze fertilizer plant.

Charm Communications (CHRM) is currently trading at $8.34, down 12.22% from its May IPO and down 16.60% from its May 5 high at $10.00. The Trading China Tracker Score is 11 (Buy).

Charm is one of the largest media/advertising companies in China with strong partners and tier one clients. The stock didn't catch much attention yet since its IPO and trades very thinly. CHRM is currently followed by 3 analysts. All 3 give the stock a positive rating. The average price target is 11.10, which implies 33.09% upside from current price.

China RuiTai International (CRUI) is currently trading at $0.78, down 31.58% for the year and down 48.00% from its March 15 high at $1.50. The Trading China Tracker Score is 11 (Buy).

RuiTai is a leading cellulose ether manufacturer in China, a cotton-based raw material for the chemical, pharmaceutical and food industry. The stock is currently trading at 47% of book value, has 60% of its market cap in cash, and is valued at 2.89x 2010 net profit based on the company's July guidance of $7 million net income for the current year.

Gold Horse International (GHIID) is currently trading at $3.13, down 2.19% for the year and down 27.21% from its September 14 high at $4.30. The Trading China Tracker Score is 10 (Buy).

Gold Horse is a real estate developer in China's Inner Mongolia province. The company has recently completed a 1:40 reverse split as the final step to get its shares listed on NYSE Amex, an uplisting could be imminent. Gold Horse will file their 2010 annual report next week and the company has already pre-announced full year results in their last presentation. GHII will report adjusted fully diluted EPS of $4.01 for FY 2010, and the stock is currently trading with a quite ridiculous P/E-ratio of 0.78.

Gulf Resources (GFRE) is currently trading at $6.51, down 44.17% for the year and down 50.31% from its March 8 high at $13.10. The Trading China Tracker Score is 10 (Buy).

Chemical company GFRE is a leading producer of bromine and other speciality chemical products in China. The company is currently under pressure for corporate governance issues and it has recently engaged Deloitte Touche Tohmatsu to perform an independent assessment over the Company's internal controls. On September 15 the company raised FY 2010 guidance and now expects earnings between $1.38 and $1.44 per diluted share. The stock is currently trading with a P/E-ratio of 4.50.

Huifeng Bio-Pharma (HFGB) is currently trading at $0.53, down 43.55% for the year and down 62.50% from its May 4 high at $1.40. The Trading China Tracker Score is 16 (Strong Buy).

Huifeng produces raw materials for the pharmaceutical industry. Last week the company announced that it has gained GMP (Good Manufacturing Practice) Certification for another five years from the SFDA and sees "great potential growth in our sales in the following quarters." Current company guidance calls for $4.5-$5.0 million in net income for this year, which translates into a current P/E-ratio of 2.50.

LianDi Clean Technology (LNDT) is currently trading at $3.50, down 46.97% from its April 28 high at $6.60. The Trading China Tracker Score is 6 (Hold).

LianDi is a provider of environmental protection solutions to China's petroleum and petrochemical industry. The company went public via reverse merger in February this year and has already applied to list its stock on a senior exchange. LNDT announced a series of positive developments (here, here and here) which went completely unnoticed in the current negative environment for U.S.-listed Chinese stocks.

Longwei Petroleum (LPH) is currently trading at $1.98, down 26.67% for the year and down 36.13% from its April 13 high at $3.10. The Trading China Tracker Score is 6 (Hold).

Longwei, a distributor of petroleum products, pre-announced strong growth for their FY 2010, ended June 30. Total revenues were $339.4 million, a 72% increase from 2009, and gross profit was $68.5 million, up 119% from fiscal 2009 gross profit. The annual report should be filed with the SEC by the end of September. The company said it "is in an ideal position to capitalize on the boom in oil demand," and is looking forward to another record year for Longwei in 2011."

New Energy Systems (NEWN) is currently trading at $5.17, down 26.97% for the year and down 40.70% from its April 16 high at $8.72. The Trading China Tracker Score is 15 (Strong Buy).

NEWN is a manufacturer of li-ion battery products. Last week the company issued a very bullish business outlook, stating that they are "extremely confident in achieving or exceeding our previously issued guidance for 2010, and anticipate very strong top and bottom-line growth in 2011." New Energy is currently entering the U.S. market with new products designed for Apple's iPod, iPhone, and iPad. The stock is currently trading with a P/E-ratio of 3.45.

Tianli Agritech (OINK) is currently trading at $3.76, down 37.34% from their July IPO and down 42.07% from its July 20 high at $6.49. The Trading China Tracker Score is 15 (Strong Buy).

Tianli is a fast growing hog producer headquartered in Wuhan, China. The company went public via an Initial Public Offering at $6.00 on July 20 and has since been totally forgotten by the market. For the last reported quarter the company posted revenue growth of 87.68% and net income growth of 145.88% over the year-ago period, and meat prices in China have been rising throughout the year. This company might get discovered soon.

Yongye International (YONG) is currently trading at $7.17, down 11.81% for the year and down 22.49% from its March 15 high at $9.25. The Trading China Tracker Score is 7 (Hold).

Yongye is a leading organic fertilizer producer in Inner Mongolia with KPMG-audited financials. After 18 months of dilution the company recently promised that they "are committed to continuing to maximize shareholder value not just through increased sales and net income, but also through further increases in our per share earnings performance." As the company expects to achieve at least a 50% annual growth rate in revenue for 2010-2012 this should now translate into significant bottom-line growth.

Sino Agro Food (SIAF) is currently trading at $1.34, up 6.34% for the year and down only 5.64% from its September 21 high at $1.42. The Trading China Tracker Score is 5 (Hold).

SIAF is a diversified agricultural company which stands out from the group of U.S.-listed stocks as it is actually trading at year highs now. The reason is that SIAF recently announced that the audits for 2008 and 2009 have been completed and the company will register with the SEC soon. SIAF should move up from the pink sheets soon and get another boost. And the planned dividend payment is quite extraordinary for a Chinese micro-cap.

ZST Digital Networks (ZSTN) is currently trading at $7.17, down 36.08% for the year and down 46.06% from its March 12 high at $10.38. The Trading China Tracker Score is 11 (Buy).

ZSTN is a supplier of cable systems and commercial GPS products in China. The company raised its FY 2010 guidance in August and now expects to report between US$17 million and US$19 million in net income for the year. The stock is currently trading with a P/E-ratio of 3.60 with a strong balance sheet.

Eastern Environment Solutions (EESC) is currently trading at $2.30, up 228.57% for the year and down 24.10% from its August 23 high at $3.03. The Trading China Tracker Score is 11 (Buy).

EESC is a provider of municipal solid waste processing and disposal services in northeast China. The company is growing exponentially with 1000% growth rates for revenue and net income over the year-ago period. "We expect to benefit from higher revenues and improved pricing in the second half of 2010, which should positively impact both our margins and overall profitability." EESC is actively working on a senior exchange listing.

Lotus Pharmaceuticals (LTUS) is currently trading at $0.93, down 27.35% for the year and down 45.30% from its February 3 high at $1.70. The Trading China Tracker Score is 10 (Buy).

Lotus sports stable annual growth rates of 20-30% and recently said that it "expects net revenues to increase from approximately $57.8 million in 2009 to $73.6 million in 2010 and for net income to rise from $16.4 million in 2009 to $21.4 million in 2010." The company has also proven a new-found interest for shareholder concerns by canceling an unfavorable financing plan and hiring an investor relations firm.

Wonder Auto Technology (WATG) is currently trading at $8.79, down 25.13% for the year and down 35.66% from its January 11 high at $13.66. The Trading China Tracker Score is 3 (Hold).

Wonder Auto is a good way to play the booming automobile industry in China. The company released bullish guidance this month, looking at $36 million or higher in Non-GAAP net income. Strong analyst coverage: WATG is currently followed by 9 analysts. 8 give the stock a positive rating, 1 rate it neutral and 0 give it a negative rating. The average price target is 14.57, which implies 65.77% upside from current price.

Disclosure: at the time of writing the author is long CGPI, CIHD, GHIID, HFGB, LNDT, LPH, LTUS, NEWN, OINK and SIAF