EngagingChina has long been critical of the quality of some of the Chinese small companies that have chosen to float on western stock exchanges in the past 18 months. Ironically, one that was initially to our liking was Bodisen Biotech, which unlike some of the more fanciful China plays, did at least produce something tangible and, ahem, down to earth -- fertiliser.
But Bodisen Biotech, which is dual listed on the American Exchange and AIM, has now had its hand slapped for not being in compliance with "certain of the Amex continued listing standards". It has been threatened with de-listing and at least three class action suits have been filed against the company in the US in recent days.
Herb Greenberg of Marketwatch first waved a red flag over Bodisen Biotech six weeks ago in a great piece of investigative journalism. Now, heavyweights like the Wall Street Journal and the Financial Times have woken up to the strange smell coming from Bodisen Biotech.
While some of the issues surrounding Bodisen Biotech are company-specific, there remains a more general problem of whether western investors -- almost always private investors -- really can make informed decisions about Bodisen Biotech and the other Chinese minnows that have listed in the west.
As EngagingChina said last month, many private investors seem prepared to blindly invest in any stock as long as the word "China" features heavily in its business plan or, even better, in its name -- see, for example, our recent stories on China Wonder, GMO and Bodisen Biotech.
The quality of the information and disclosure surrounding Chinese minnows sometimes leaves much to be desired but brokers, regulators and the few analysts that follow these tiddlers apparently prefer not to ask too many awkward questions.
Even if they do have questions, they might have trouble getting an answer. Greenberg notes that Bodisen Biotech planned to hold a conference call last week for worried US investors, even though none of its top executives speak English. The call was postponed.
Back in August, Simon Littlewood, chief executive of London Asia Capital, the Far East-focussed investment bank, warned that some brokers do not understand the risks associated with Chinese businesses -- see this EngagingChina story.
The nominated advisers (nomads) that are supposed to advise companies planning to list on on London's Aim market are not even required to have an office in China -- although London Asian Capital, for one, does.
If the advisers do not understand the business or speak the same language as their client, then what hope for private investors?
