Lenient stance on fraudulent firm riles investors

The mainland's securities regulator has been caught in the eye of the storm after deciding to maintain the listing status of a company found to have falsified its earnings for five years.

Investors vented their dismay at the China Securities Regulatory Commission when it failed to expel Nanjing Textiles Import & Export, a state-controlled trading firm, from the Shanghai stock exchange.

Nanjing Textiles was recently found by the CSRC to have overstated its earnings between 2006 and 2010, with the company and 12 officials fined a combined 1.53 million yuan (HK$1.92 million) for the wrongdoings, according to company statements. The company operated with losses in the six years from 2006 to 2011.

To the amazement of retail investors, the regulator said the company could still be traded on the Shanghai bourse despite growing calls for it to be thrown out of the stock market. On the mainland, companies reporting losses for three years in a row should be delisted.

CSRC spokesman Deng Ke told a press conference on Friday that the decision complied with the securities laws and regulations because the delisting standards factored out "adjusted" earnings or losses for previous years.