Private investigator Dong Xiaojie says business is booming.
As head of Sheng Yuan Asset Management in Beijing, Dong conducts investigations for some of the world's largest investment banks and private equity funds. He has the Chinese agricultural sector to thank for his recent success.
A raft of accounting scandals at mainland companies has taught investors that finances, even entire companies, can easily be faked in China. Sentiment has swung from complacency to paranoia.
And no sector has suffered from this new skittishness more than agriculture. Shares in mainland farming and forestry firms have plunged in recent months. That is because investors are learning that because there is no centralised or even city-level registry for agricultural land, it is impossible to confirm the claims agricultural firms make about their assets. And the farming companies themselves appear stumped about how to get shareholders back on their side.
'Farming and forestry have been the busiest sectors for us so far this year,' said Dong, who was enjoying a dumpling and noodles breakfast at Hong Kong's Mandarin Oriental hotel, where he stays during monthly marketing trips to the city. Chinese agricultural firms are keeping him so busy because investors 'cannot easily check what agricultural companies tell them about the land they own'.
On May 19, Hong Kong-listed logging company China Forestry Holdings said its former chief executive Li Hanchun, who is now under arrest on the mainland, had embezzled funds and potentially faked land purchases.
China Forestry's directors, led by founder and chairman Li Kwok-cheong, said they believe the company owned 231,000 hectares of tree plantations. But they said in a statement accompanying the May 19 annual report that because some books and records were 'missing' and others had turned out to be 'unreliable', they could not be sure.
Then, on May 26, Hong Kong tabloid magazine Next claimed Chaoda Modern Agriculture (Holdings), which bills itself as China's largest fruit and vegetable producer, was exaggerating the size of its land bank.
Chaoda denied the report. But its shares, hammered by the China Forestry scandal and the magazine report, lost 43.1 per cent of their value between May 18 and the close of trade on Friday.
Chaoda was the most-shorted stock on the Hang Seng Index as of July 21, according to Data Explorers, with more than a fifth of its shares on loan to short sellers hoping to buy the share for a lower price.
Shareholders are also deserting mainland agricultural companies that are not on the receiving end of fake accounting accusations.
China Green, a Hong Kong-listed mainland farmer, is down 25 per cent since May 18. And China Minzhong Food Corp, a Singapore-listed farmer, has lost 13 per cent of its market capitalisation.
In a telephone interview, Minzhong finance director Ryan Siek said private investigators had visited the company's land, questioning villagers working nearby about whether cultivation bases are really owned by his company.
'We have come across incidences where they have approached villagers,' Siek said, adding he did not believe the technique to be very effective. 'Often, villagers do not know of Minzhong,' he said, explaining that is because the average peasant is probably not interested in who owns the field next to theirs.
Nonetheless, some fund managers feel they are less able to rely on auditors for peace of mind about mainland agricultural companies since China Forestry's big four auditor, KPMG, was so obviously fooled. So they are turning to private investigators for a more straightforward approach to checking whether assets are real.
Dong will not disclose the names of the mainland agricultural companies he has investigated. But he tells how a US private equity house aborted its planned investment into a Chinese pig farmer late last year after he and 10 staffers spent three weeks investigating the business.
The pig farmer had told its potential investor it employed 135 farmers to raise its pigs. Since the chief executive of the farming company knew Dong was working for the potential investor, he was co-operative enough to supply what appeared to be a list of these workers' names and addresses.
'So I went to the local police stations to verify these peoples' hukou registrations [the legal records of mainland citizens' residency] and found that 80 were not resident where the company said they were,' Dong said. 'That meant the investment fell through.'
Anecdotes like that will make investors in mainland agricultural firms shudder. But the finance directors of China Green and Minzhong are doing their best to win back investor confidence. Chaoda representatives did not respond to requests for comment.
Since the China Forestry scandal, Siek said Minzhong had seen increasing requests from investors to validate the leases. He said his company allows investors to see copies of all company leases on request. But he also admitted there was no way for the investors to verify everything Minzhong showed them.
'It varies by location. Some township governments keep files on [farming] leases, while others are less proactive.'
China Green, which grows vegetables in provinces including Fujian, Jiangxi, which is just inland from Fujian, and Hebei, a province surrounding Beijing, is the 16th most-shorted stock in Hong Kong, according to Data Explorers. Eight per cent of its stock is loaned out to investors speculating it has further to fall.
On a bus ride to view one of his company's sweet corn and broccoli farms in Hebei, Evan Wong, China Green's chief financial officer, said the company planned to reassure shareholders by hiring one of the world's four biggest accounting firms to audit the business.
The company is audited by small accountant Crowe Horwath. So far, none of the big four - Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers - signed up.
'There are things about our sector that auditors are inherently uncomfortable with,' Wong said. It is also unlikely that even the largest audit firm would have enough manpower to physically verify each one of China Green's 6,180 hectares of farmland and processing bases every year.
However, he said Crowe Horwath had verified 90 per cent of the land bank during the past several years.
Access to records of who owns rights to agricultural land are not available to the public on the mainland, said Gao Yu, the China country head for Landesa, a global NGO that helps farmers secure land rights.
The government owns all agricultural land, Gao said. Between 1979-84, the large farming communes formed by Mao Zedong's government were broken up into family holdings. Since 1984, land has been leased in individual plots to farming families for a maximum 30 years, in arrangements supervised by the heads of village collectives.
Gao said that if large agribusinesses wanted land-use rights - to convert fields that are being farmed by individual families into large, modern cultivation bases - by law the companies must get signed agreements from two-thirds of the families working the land. He added that copies of leases were usually only held by the village heads.
'It really depends on locality,' he said. 'Some town governments may collect files on the leases [drawn up by village heads] and show them to the public, but some township governments are less proactive. The only way for [investors] to verify everything would be to approach local village committees one by one.'
This vacuum of publicly available data on Chinese farmland has definitely not helped Chaoda, which has long faced sharp questions from analysts about its land bank.
The Fujian vegetable and fruit producer has raised US$571 million in stock and bond sales to spend on new farms and equipment in the past two years.
In a research note in March, Macquarie Securities analyst Jake Lynch wrote that Chaoda had an 'enormous' land bank that was not producing revenue. The company had a large collection of 'forestry plantations, livestock grazing grounds and mountain land of vague value', he said.
Lynch, of course, could not prove his assertion by referring to public records. He did, however, calculate that much of Chaoda's land was idle by comparing the farmer's stated fruit and vegetable production against the amount of land recorded in its accounts, and concluded that production was far too low. Lynch confirmed in a June 28 e-mail that he still held that view.
When asked if China Green could increase investor confidence by making copies of all its leases public, Wong said the company was looking into this.
'In view of recent scandals and concerns by investors ... [the company is] in the process of considering' making lease information available, Wong said in an e-mail. However, he said, the company had 'to strike an optimal balance between the transparency of information to investors and commercial confidentiality'.
Clearly at a loss about how to rescue his company's plunging share price, Siek is appealing to investment banks' research analysts to help Minzhong verify its land holdings. In effect, he recommends they swap their Church's and Gucci loafers for Wellington boots, buy measuring wheels and clickers and travel across Minzhong's farms, measuring the fields and counting the truckloads of carrots and cabbages that go in and out of its processing centres.
'Maybe the analysts should be more diligent. They could do their own spot checks [of our land].'
He said if enough research analysts put out reports 'saying perhaps they have seen 30 to 50 per cent of our land, and that it is definitely there', the share price would recover.
'We need reputable third parties to help us.'
China Minzhong's revenue, in yuan, recorded last year, which was a 34.5 per cent increase on the previous year's 1.05 billion yuan