Zoomlion Shares Rise After Daily Apologizes: Hong Kong Mover

Zoomlion Heavy Industry Science and Technology Co. gained in Hong Kong trading after a Chinese daily apologized for publishing unverified stories questioning the finances of the construction-machinery manufacturer.

The stock jumped 4.8 percent, the most in more than a month, to HK$7.02, trimming the loss this year to 38 percent.

Xinkuaibao apologized for failing to verify stories by its reporter Chen Yongzhou, following a report aired by state-run China Central Television on Oct. 27 that showed footage of Chen being interrogated by police in Changsha. The stories alleged Zoomlion was involved with “losses” of state assets, irregular revenues and forging sales and financial information, according to the CCTV report.

“The fact that the newspaper probably won’t dig further into the Zoomlion case is positive for shares,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “There was a possibility Zoomlion’s alleged improper accounting would get more attention after the reporter’s arrest. After the reporter and the newspaper apologized, it’s unlikely there will be further media reports questioning its accounting.”

CCTV’s broadcast and the newspaper’s apology “makes a complete mockery of this ‘China is a country under rule of law’ nonsense that we get fed,” said Jeremy Goldkorn, founding director of Danwei.com, a Beijing-based firm that researches China’s media and Internet.

Political Element

“I don’t know the specifics of this case, but you don’t get a confession on CCTV unless there is some political element to it,” Goldkorn said.

Xinkuaibao’s apology appeared in the bottom left-hand corner of the front page of yesterday’s edition, according to an electronic version. The Guangzhou-based daily said its initial response, which included calling for the police to release Chen, was inappropriate and “seriously hurt the credibility of the press.”

The newspaper may have been pressured to apologize, Goldkorn said. “If you look at the front page, it’s in a tiny corner, it doesn’t look like a very sincere apology.”

Dressed in a detention-center vest, handcuffed and with his head shaved, Chen was heard saying that the information he released was “absolutely not objective” and that “I’m willing to admit to the crime and repent.”

Deep Apology

Chen allegedly told police he accepted payments in exchange for publishing fabricated reports about Zoomlion. The company in February and May denied allegations by the newspaper that it falsified sales. On May 28, it said an article accusing it of improperly accounting for sales was “distorted” and “misleading.”

In its statement yesterday, Xinkuaibao said the police’s initial investigation showed Chen published “a lot of incorrect reports and took money.” The newspaper failed to carefully review his articles before publishing them, it said.

It sent a “deep apology to all in society,” and pledged to “earnestly correct the existing problem” and “demand our editorial staff respect facts and abide by the law and professional ethics.”

Xinkuaibao, translated as New Express, is part of the Guangzhou-based Yangcheng Evening News Group, according to the websites of both publications. Chen has worked at Xinkuaibao as a reporter since graduating in 2009, the paper said.

Front-Page Appeals

Xinkuaibao made two front-page appeals last week for police in Changsha, the capital of central Hunan province, to release the 27-year-old reporter, who was detained Oct. 18. His arrest follows a ruling by the country’s Supreme Court last month that people who post defamatory comments online could face as long as three years in jail.

“No matter he’s guilty or not, there are serious issues with the procedures here,” Abe Yang, a lawyer with Dacheng Law Offices in Shenzhen, said in a telephone interview, referring to the airing of the program and Chen’s statement. “Even if the police believe they have enough evidence, it’s up to the court to decide whether he’s truly guilty.”

Zoomlion was formed out of Changsha Construction and Machinery Research Institute, which was owned by the Ministry of Construction, according to the company’s website.

Hunan State-Owned Assets held 19.97 percent of the A-shares listed in Shenzhen as of April 2, according to data compiled by Bloomberg. The government of Hunan owned 16.2 percent of Zoomlion at the end of 2012, according to the company’s annual report.

Police Investigation

Chen is the latest subject of a police investigation to be shown on state television saying he committed wrongdoing. American-Chinese venture capitalist and celebrity blogger Charles Xue, who was detained in August on charges of soliciting prostitutes, appeared on television the following month and said the charges were true. Xue, who wrote on politically sensitive topics to his 12 million followers, also said he behaved irresponsibly in forwarding comments.

In July, Liang Hong, vice president and operations manager in China for London-based GlaxoSmithKline Plc, said in questioning shown on television that he used a travel agency to bribe officials and hospitals. The company is part of a probe by Chinese authorities into corruption in the pharmaceutical industry.

Wealth, Fame

Chen was motivated by wealth and fame, CCTV said in its report, citing the police. He was asked by other people, who weren’t named in the report, to publish more than 10 pre-written articles under his byline which “negatively affected” Zoomlion, in exchange for hundreds of thousands of yuan of payments, according to the report. He also told investigators he was paid 500,000 yuan ($82,000) for notifying regulators of the company’s practices, CCTV said.

No details about who gave Chen the money and who he wrote the stories for were given in the CCTV report or in the newspaper’s statement.

Police in Changsha received a complaint from the company on Sept. 9, set up the case on Sept. 16, and arrested Chen in Guangzhou on Oct. 18 after “possessing a large amount of evidence,” CCTV said.

“Journalists are concerned that this will set a bad precedent for local governments to suppress the media to protect their businesses,” said Zhang Zhi’an, deputy dean of the School of Communication and Design at Sun Yat-sen University in Guangzhou. “Because only the primary state media are reporting the case, it’s very difficult to get closer to the truth about what exactly is not correct in those reports and whether and how the journalist took money.”

China’s media are mostly state owned and regularly receive instructions from propaganda authorities on what to cover, making it unusual for newspapers to make a public stand.

Another journalist at the Xinkuaibao, Liu Hu, was arrested Sept. 30 after posting allegations of wrongdoing by government officials online. His lawyer Zhou Ze said on Oct. 10 he faced a charge of defamation and had been in detention since Aug.24.