Investors Worry About China; D'Long's Plight Suggests Problems With Nation's Stock Markets
Beijing -- A CREDIT SQUEEZE gripping one of China's biggest investment companies is spooking investors and raising questions about the way business is being done in the country's stock markets. But there may be some buying opportunities for the brave-hearted.</br></br>D'Long International Strategic Investment, founded in 1986 by four siblings named Tang from China's northwestern region of Xinjiang, rode years of easy credit to become one of the country's largest private conglomerates. Its holdings include one of the world's biggest tomato- paste makers, China's foremost heavy-truck manufacturer, and U.S. lawn-equipment company Murray. D'Long has stakes in more than 100 Chinese companies, including a dozen securities firms and commercial banks.</br></br>This spring, Beijing's credit-tightening measures -- aimed at cooling a hot economy -- coupled with Chinese media reports questioning D'Long's financial health sent share prices of some of the company's listed affiliates spiraling. The developments set off a chain reaction that threatened to bring down the Tangs' empire and damped already-weak investor confidence in China's stock market. It also shined a spotlight on questionable practices that are seen as widespread in China's financial industry, from stock-price manipulation to the use of price-inflated shares as collateral for bank loans.</br></br>D'Long's predicament "tells us that there still exist big loopholes in China's equity-market structure and corporate governance," says Zhang Yong, an analyst for Great Wall Securities.</br></br>Chinese prosecutors haven't charged D'Long with any wrongdoing, and there isn't any indication that the siblings have broken any laws. Some banks and other creditors have filed lawsuits against D'Long, however, and a Shanghai judge involved says the situation "is under further investigation." Some Chinese media have suggested that D'Long ramped up stock prices and then tapped its financial institutions for funding to finance its ambitious expansion -- allegations that company executives have denied.