The majority of Chinese companies listed on the South Korean stock market have experienced a sharp decline in their stock prices over the past year. This is attributed to the economic downturn in China last year, which worsened investor sentiment towards Chinese companies coupled with accumulated distrust in these enterprises.
According to industry sources on Jan. 7, a comparison of the closing stock prices on Jan. 5 for 11 Chinese companies listed on the KOSDAQ market with their prices on Jan. 2, 2023, reveals that the share prices of 9 out of the 11 companies have declined compared to a year ago. The average decline amounted to 38.60 percent, in stark contrast to the KOSDAQ index, which rose by 29.30 percent over the past year.
Due to the economic downturn in China last year, the overall performance of Chinese companies also deteriorated. A notable example is the cosmetics manufacturing company Organic Tea Cosmetics Holdings, which incurred an operating loss of 63.9 billion won (US$48.7 million) in 2022, leading to a deficit. Headquartered in Hong Kong, the company generates 99 percent of its total revenue from sales in Hong Kong and China. Although the financial results for the fourth quarter of last year have not yet been announced, it has consistently recorded losses until the third quarter.
The unfair trading practices of Chinese companies have also heightened distrust among domestic investors. In October, Golden Century experienced a sharp decline in its stock price to below 100 won (US$0.08) after allegations of market manipulation by its management were exposed. The company faced criticism for not providing a clear stance on the allegations of unfair practices, leading to concerns about inadequate communication of information.
Experts anticipate a gradual improvement in the profitability of Chinese companies this year. However, analysts suggest that the prevailing distrust towards Chinese companies makes it challenging to alleviate the “China discount.” China Ocean Resources was delisted in 2017 due to false disclosures and document manipulation in 2009. In 2011, China Gaoxian Fibre Fabric Holdings was also expelled from the market within two months of listing when accounting fraud in the range of 100 billion won was exposed. In 2021, SNK, the largest shareholder of which is a Chinese corporation, faced allegations of improper capital outflow, hosting extravagant events such as high dividends and employee stock option parties using funds raised through public offerings. Following the suspicions, the company voluntarily delisted the following year.
Hwang Sei-woon, a research fellow at the Korea Capital Market Institute, said, “Chinese companies are subject to regulation by Chinese authorities in terms of disclosure and accounting, making it challenging to ensure transparency. It will be difficult for the China discount to be resolved in the short term.”