Eliza Wong
Executive Summary
Critical developments regarding *ST Gaohong’s listing status demand immediate attention from China equity market participants:
– Stock price closed at 0.48 yuan on September 19, 2025, with 15 consecutive trading days below 1 yuan face value threshold
– Faces dual delisting threats: face value delisting and major violation强制退市 (compulsory delisting)
– China Securities Regulatory Commission (CSRC 中国证监会) investigation revealed nine years of financial misstatement totaling 199.86 billion yuan in fabricated revenue
– 2020 private placement raised 1.25 billion yuan using fraudulent financial data, constituting欺诈发行 (fraudulent issuance)
– Company maintains rights to hearing and defense despite overwhelming evidence of violations
Market Alert: *ST Gaohong Nearing Face Value Delisting Threshold
The Shenzhen Stock Exchange (深圳证券交易所) witnessed another listed company approaching the face value delisting cliff as *ST Gaohong (000851) officially confirmed its precarious position in a September 21 disclosure. With shares trading at merely 0.48 yuan, the company has spent 15 consecutive trading days below the critical 1 yuan threshold that triggers automatic delisting procedures under exchange rules.
According to Article 9.2.1 and 9.1.15 of the Shenzhen Stock Exchange Listing Rules (《深圳证券交易所股票上市规则》), companies whose shares trade below 1 yuan for 20 consecutive trading days face immediate delisting without entering a退市整理期 (delisting consolidation period). This face value delisting mechanism represents China’s continued efforts to purge its markets of underperforming entities and protect investor interests.
Technical Impossibility of Recovery
Market mathematics render recovery virtually impossible. Even if *ST Gaohong shares were to experience the maximum daily allowable 5% increase for the next five sessions, the price would reach only approximately 0.61 yuan—still far below the 1 yuan survival threshold. This mathematical certainty has created a countdown to delisting that market participants are watching closely.
Dual Delisting Threats: Regulatory Violations Compound Troubles
Beyond the face value delisting threat, *ST Gaohong confronts simultaneous regulatory actions that could accelerate its exit from public markets. The company received a行政处罚事先告知书 (Administrative Penalty Preliminary Notice) from the CSRC on August 8, 2025, outlining severe financial reporting violations spanning nearly a decade.
The preliminary findings indicate systematic financial fabrication from 2015 through 2023, with虚假记载 (false recording) affecting annual reports throughout this period. These violations potentially trigger强制退市 (compulsory delusion) under Article 9.5.1 and 9.5.2 of the listing rules, creating a parallel delisting pathway that could supersede the face value delisting process.
Fraudulent Issuance Charges
Most damagingly, the CSRC determined that the company’s 2020非公开发行股票 (private placement stock issuance) constituted欺诈发行 (fraudulent issuance). The 1.25 billion yuan capital raise approved in April 2021 relied on financial data from 2018-2020 that investigators now confirm contained fabricated revenue and profit figures.
This finding represents particularly serious violations because it involves capital raising based on knowingly false information, potentially exposing underwriters, auditors, and company executives to secondary liability beyond the company itself.
Financial Misstatement Scale: Nine Years of Fabricated Results
The CSRC’s preliminary findings reveal one of the most extensive financial misstatement cases in recent Shenzhen Stock Exchange history. The magnitude and duration of the fabrications suggest systemic issues rather than isolated accounting errors:
– Total fabricated revenue: 199.86 billion yuan across nine years
– Peak fabrication in 2019: 56.34 billion yuan in false revenue, representing 49.38% of reported revenue
– Fabricated profit totals: 9.24 billion yuan across the violation period
– Most significant profit impact in 2019: 219 million yuan in false profits, representing 64.88% of reported profits
The gradual decline in fabrication percentages from 2019 onward suggests either improved detection risk awareness or declining business operations that made larger fabrications more difficult to conceal.
Year-by-Year Violation Patterns
Analysis of the year-by-year data reveals concerning patterns about the company’s reporting practices:
2015-2017: Moderate fabrication levels between 9-28% of revenue, suggesting initial testing of controls
2018-2020: Peak fabrication periods coinciding with the private placement preparation and execution
2021-2023: Declining fabrication percentages potentially indicating either improved compliance or reduced operational complexity that made fabrication more difficult
The timing strongly suggests that the 2020 private placement created pressure to demonstrate financial performance that the underlying business could not support organically.
Market Reaction and Trading Abnormalities
Market participants have reacted strongly to the developing situation, with *ST Gaohong shares experiencing extreme volatility. The company separately disclosed that its stock price had declined abnormally over three consecutive trading days (September 17-19, 2025), with cumulative declines exceeding 12%—triggering the Shenzhen Stock Exchange’s abnormal trading monitoring mechanisms.
This volatility reflects both the mathematical certainty of face value delisting and the market’s assessment of the CSRC investigation’s likely outcomes. Sophisticated institutional investors have largely exited positions, leaving retail investors disproportionately exposed to the impending delisting.
Investor Protection Considerations
The dual delisting threats create complex investor protection considerations. While the face value delisting rules provide clear, mathematical triggers that give investors unambiguous warning, the regulatory violation process involves more procedural complexity.
Investors must monitor both the daily stock price and the status of the CSRC investigation, as either pathway could result in termination of listing. The company maintains its right to a hearing and defense against the CSRC’s preliminary findings, though the overwhelming evidence suggests low probability of successful defense.
Corporate Background and Historical Context
大唐高鸿网络股份有限公司 (Datang Gaohong Network Co., Ltd.) represents a historically significant technology enterprise within China’s telecommunications ecosystem. Founded by电信科学技术研究院有限公司 (China Academy of Telecommunications Technology, commonly known as大唐电信集团 Datang Telecom Group), the company came to market in 2003 with strong technological credentials and state-backing.
Over two decades of development, the company established three business segments:数智化应用 (digital-intelligent applications),信息服务 (information services), andIT销售 (IT sales). This diversification strategy initially showed promise but apparently created operational complexity that may have contributed to the financial reporting issues now uncovered.
The company’s connection to the prestigious Datang Telecom Group, a pioneer in China’s TD-SCDMA technology development, makes the scale of the financial irregularities particularly surprising to market observers who expected stronger corporate governance from state-affiliated technology enterprises.
Regulatory Environment and Market Implications
*ST Gaohong’s situation occurs within the context of China’s intensified financial market regulation under CSRC Chairman Wu Qing (吴清). The regulatory approach has increasingly emphasized market cleanliness and investor protection through strict enforcement of delisting mechanisms.
The simultaneous pursuit of both face value and violation-based delisting pathways signals regulatory determination to remove problematic companies efficiently. This approach aims to reduce market clutter and protect investors from prolonged exposure to fundamentally compromised enterprises.
For the broader market, *ST Gaohong’s case demonstrates several important trends:
– Regulatory willingness to investigate historical financial statements deeply, even beyond the standard three-year statute of limitations in some cases
– Increased coordination between exchange monitoring (face value triggers) and CSRC investigation (violation triggers)
– Reduced tolerance for financial manipulation, particularly when it facilitates additional capital raising
– Heightened scrutiny of state-affiliated enterprises that may have previously benefited from assumptions of better governance
Investment Implications and Risk Management Strategies
For institutional investors active in Chinese equities, the *ST Gaohong case offers several critical risk management lessons:
– Enhanced due diligence requirements for companies approaching face value delisting thresholds
– Closer scrutiny of capital raising activities that coincide with periods of exceptional financial performance
– Increased attention to state-affiliated enterprises that may carry implicit governance assumptions not supported by reality
– More sophisticated monitoring of regulatory investigation timelines and potential outcomes
The mathematical certainty of face value delisting creates a clear exit imperative for remaining investors. Any attempts to bottom-fish or speculate on miraculous recovery represent extraordinarily high-risk strategies given the simultaneous regulatory investigation.
Portfolio Management Considerations
Fund managers should review holdings for similar characteristics: companies approaching 1 yuan price levels, those with recent capital raising activities, and enterprises with complex business structures that might facilitate financial obfuscation. The case particularly highlights the risks of assumptions about corporate governance quality based solely on state affiliation or historical prestige.
Forward Outlook and Resolution Timelines
The *ST Gaohong situation will likely proceed along two parallel tracks with different timelines. The face value delisting countdown provides a fixed endpoint: if the stock remains below 1 yuan for five more trading days, delisting becomes automatic under exchange rules.
The regulatory violation process follows a less certain timeline. The company maintains its right to a hearing and defense, though the overwhelming evidence suggests low probability of successfully challenging the CSRC’s findings. Historically, companies facing similar allegations have typically accepted settlements rather than engaging in prolonged legal challenges.
Investors should anticipate one of two likely outcomes:
1. Face value delisting within approximately one week if trading continues below 1 yuan
2. Accelerated regulatory delisting if the CSRC process concludes before the face value trigger
In either scenario, the company’s exit from public markets appears virtually certain, making recovery of investment highly unlikely for current shareholders.
Strategic Guidance for Market Participants
The *ST Gaohong case represents both a specific company failure and a broader signal about China’s evolving regulatory environment. Market participants should interpret several key messages:
– Regulatory tolerance for financial manipulation has reached historically low levels
– Face value delisting mechanisms create mathematical certainties that eliminate speculative opportunities around fundamentally compromised companies
– Even historically prestigious, state-affiliated enterprises face rigorous scrutiny without preferential treatment
– Coordination between exchange monitoring and CSRC investigation creates multiple failure pathways for problematic companies
For active investors in Chinese equities, this environment demands enhanced due diligence, particularly around companies showing financial performance anomalies or approaching technical delisting thresholds. The era of assuming state backing or historical prestige provides protection against rigorous enforcement has clearly ended.
Monitor both exchange announcements and CSRC developments closely, as the regulatory environment continues evolving rapidly under China’s financial market reform initiatives. The *ST Gaohong case likely represents not an endpoint but rather another step in continuous market quality improvement efforts.
