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Article Abstract

STOP TRADING "The company has never recognized potential purchase orders as sales, nor has it ever 'fabricated any fictitious sales in which the existing clients are disguised as some other clients,' as alleged in the press article." So ran Zoomlion Heavy Industry Science & Technology Co.'s Jan. 8 denial of the anonymous charges appearing in Ming Pao Daily of Hong Kong on the same date. Management requested--and Hong Kong exchange officials consented to--a day-long halt in Zoomlion trading. In trying to knock down the unsigned allegations, Zoomlion said--as Bloomberg paraphrased the statement--that "its sales follow Chinese accounting rules." There is, perhaps, cold comfort in Chinese accounting rules. But bears on Zoomlion, China's No. 2 producer of construction equipment, have found plenty of grist in operational matters. IMAGE1 Thus, in the issue dated Oct. 21, 2011, Grant's called attention to the surge in company-financed sales and in finance receivables. And in the issue dated May 18, 2012, we quoted Jefferies & Co. on a related phenomenon: How could a Zoomlion customer without any money afford a new Zoomlion cement mixer? Jefferies answered its own question: With zero down-payment Zoomlion financing. No poison pen letter was necessary to prompt suspicion that something was amiss. Zoomlion's own relentless growth has piqued curious minds. Thus, over the first three quarters of 2012, the company claimed a year-over-year rise in revenues of 17.8% while--according to China Construction Machinery Business Online, the heavy-equipment trade group--overall unit sales of excavators and loaders dropped by 37% and 28%, ...

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