China accounting lands investors in hot water

TWO MORE CHINA-BASED companies are suspected of accounting shortcomings, both of which are in the portfolio of major regional investor Carlyle.

Concord Medical Services and China Energy Recycling have come under the scrutiny of key auditors, Reuters reports, although the potential problems are thought to be less serious than high-profile cases such as China Agritech, which was de-listed from the Nasdaq for failing to file its annual report on time.

Ernst & Young said that Concord Medical Services lacked staff with knowledge of US accounting rules, meaning that internal financial reporting controls were compromised.

Meanwhile, China Energy Recycling fell foul of US regulator the Securities and Exchange Commission after a self-assessment of its internal controls was judged to be too perfunctory, forcing it to refile its 2009 annual report.

A string of high-profile accounting scares have made investors more wary of US-listed companies operating mainly out of China, prompting the US regulator to issue a warning.

Carlyle has more companies in the country than any other private equity firm, describing itself as a "long-term investor in China". A spokesperson said: "It takes experience, patience and persuasion to guide portfolio companies on their path to internationalisation."