Eliza Wong
A Company on the Brink
China’s leading automotive coatings manufacturer, Jinlitai (300225.SZ), finds itself in a severe corporate governance crisis that threatens its very survival. Major shareholder Hainan Dahe Enterprise Management Co., Ltd. has taken the extraordinary step of publicly soliciting voting rights from all shareholders to oust three current directors and install new leadership. The company faces allegations of fund misappropriation, questionable transactions with traders, and the mysterious influence of a shadow controller pulling strings behind the scenes. With delisting risks looming large, this corporate drama exposes deep fractures within China’s corporate governance framework and raises serious questions about financial oversight in publicly listed companies.
The Strategic Stockpiling Controversy
Questionable Procurement Practices
At the heart of Jinlitai’s troubles lies what the company describes as ‘strategic stockpiling’ of materials. According to the audit report from Zhongxinghua Accounting Firm, throughout 2024, Jinlitai entered into quarterly procurement agreements with eight trading companies, including Ruinai Trading, transferring funds at the beginning of each quarter and receiving them back at quarter’s end through procurement cancellation agreements. Auditors identified this circular fund movement as creating ‘significant risk of funds being diverted through channel parties to ultimate beneficiaries.’ The regularity and timing of these transactions raised red flags about whether this was genuine strategic stockpiling or a mechanism for fund diversion. Company management maintains that the strategic stockpiling was justified to ensure原材料 supply and lock in prices, especially given their expectation of rising raw material costs. They also claimed intended to profit by reselling materials. However, this explanation has failed to satisfy regulators, auditors, and even members of their own board.
Internal Dissent and Contradictions
Jinlitai’s audit committee has directly contradicted management’s stance, stating that the 2024 strategic stockpiling ‘no longer conformed to normal commercial substance for procurement and price locking.’ The committee revealed they had repeatedly requested management to truthfully complete non-operational fund occupation forms during the audit process, but management consistently refused. This internal conflict has resulted in three board meetings since July where at least three directors expressed opposition to the company’s official responses to regulatory inquiries. An industry expert consulted by Daily Economic News noted that strategic stockpiling suppliers in the chemical coatings industry must possess pricing power, which the eight trading companies involved clearly lacked based on their operational profiles.
Dubious Transactions and Circular Fund Flows
The Shihezi Yike Repayment Mystery
In April 2024, Jinlitai received 137.53 million yuan in repurchase payments from Shihezi Yike Equity Investment Partnership. Immediately after receiving these funds, the company transferred them out to various trading companies under the guise of strategic stockpiling procurement, making the ultimate destination untraceable. The audit committee has labeled this a ‘false repayment’ and insists Shihezi Yike still owes the initial repurchase amount, requiring full bad debt provisioning in financial statements. Investigation revealed that the funds Shihezi Yike used for repayment came from two sources: Shenzhen Keshang Technology (85 million yuan) and New Focus Technology Beijing (55 million yuan). The法定代表人 of New Focus Technology Beijing, Tong Fei, is also the法定代表人 of Beijing Senwo Capital Management—the ultimate destination of the funds. This circular flow suggests the repayment money essentially returned to its original sources.
The Yitaiji Acquisition Questions
In September 2024, Jinlitai acquired 34% of Shenzhen Yitaiji Technology for 323 million yuan from Xiamen Yike. Upon receiving the payment, Xiamen Yike immediately transferred out 307 million yuan to parties with abnormal backgrounds. Jinlitai claims the acquisition funds came from operational capital and denies knowledge of why two strategic stockpiling suppliers transferred money to Beijing Senwo. The company maintains that despite sharing the same actual controller, the transactions with Shihezi Yike and Xiamen Yike had different natures, purposes, and commercial logic, thus not constituting a package deal or non-operational fund occupation. The audit committee disagrees, suggesting the acquisition was used by the fund occupation entity to balance its accounts, forming part of the non-operational fund occupation.
The Shadow Controller Allegations
Pei Jian: The Mysterious Power Behind the Throne
The most explosive allegations concern Pei Jian, who multiple directors have identified as Jinlitai’s actual controller despite company denials. Director Liu Ruiming has openly accused management and Pei Jian of colluding with internal executives including former chairman Luo Dian and financial director Sui Jingyuan, plus external individuals Xu Di and Qian Cheng, to embezzle company funds under the pretext of not interfering with procurement departments. Liu stated that despite three rounds of questioning during July and August, management led by郝大庆 remained evasive about Pei Jian’s role and status. Journalistic investigation has uncovered connections between Pei Jian and Ruinai Trading, one of the companies涉嫌 of fund occupation. Ruinai Trading previously had a shareholder named Xu Wei, who now serves as general manager of Shanghai Huajin Industrial Co.—historically connected to Jinlitai’s former largest shareholder, Huajin Asset Management. Additionally, Shanghai Kehui Industrial Co., currently wholly owned by Xu Wei, was previously wholly owned by Pei Jian.
Corporate Access Without Formal Role
Despite having no official position or ownership stake, Pei Jian appears to wield considerable influence within Jinlitai. Director Liu Ruiming has questioned why Pei Jian could freely access company premises, use company facilities, and enjoy dedicated car and driver services. Multiple sources have confirmed that Pei Jian frequently visited Jinlitai, where a Lexus business vehicle with driver was at his disposal. Company executives, including the chairman, reportedly addressed him as ‘leader.’ An insider直言 that Pei Jian is actually the ‘big leader’ whom nearly three successive chairmen and core executives report to and take direction from. Notably, Pei Jian regularly appeared at Jinlitai until regulatory investigations began in July, after which he stopped visiting.
Boardroom Battle and Governance Failure
Hainan Dahe’s Desperate Move
With their nominated candidates unable to join the board through常规 channels, major shareholder Hainan Dahe has taken the unusual step of publicly征集 voting rights from all shareholders. They seek to remove directors Luo Dian, Yu Xugang, and Tang Guangze while electing Liu Xiaolong as new director during September’s temporary shareholders meeting. In their official social media posts, Hainan Dahe has直言 that Jinlitai faces high delisting risk and stands on the brink of survival, accusing current board management of涉嫌 misappropriating甚至 embezzling company funds. This public airing of governance disputes reflects the depth of the crisis and breakdown of normal corporate decision-making processes.
The Association Dilemma
A significant point of contention involves whether the eight trading companies should be considered associates. In July 2025, Jinlitai classified these traders as ‘other related parties and their affiliated enterprises.’ However, when responding to regulatory inquiries, the company reversed position, claiming that after verification and communication with shareholders and management, no equity control or concerted action relationship existed with Ruinai Trading and the other seven suppliers. Jinlitai explained they initially classified them as associated based on criteria that included ‘recognizing association relationships that might cause the listed company to tilt benefits toward them.’ The company disclosed that these eight traders profited from their dealings with the listed company in 2024. The audit committee maintains that the 2024 and 2025 strategic stockpiling suppliers were likely controlled by the same entity or person. An experienced auditor consulted by Daily Economic News agreed that based on fund flow patterns and timing, the eight traders appeared to be controlled by a single entity.
Regulatory Scrutiny and Investigation
Regulators have taken serious notice of Jinlitai’s situation. The Shanghai Securities Regulatory Bureau has demanded the company self-inspect whether large fund transactions with multiple traders involved non-operational fund occupation. They’ve also required explanation of the authenticity of certain transaction links and fund occupation circumstances during the equity investment in Shenzhen Yitaiji Technology. China Securities Regulatory Commission has launched a formal investigation, though no conclusions have been reached yet. The company’s stock has been specially treated with delisting risk warning, changing its简称 to *ST Jintai. Trading at 5.15 yuan per share with market capitalization of 2.448 billion yuan, the company’s future hangs in the balance depending on regulatory findings and whether they can address governance failures.
Lessons for China’s Capital Markets
The Jinlitai saga offers several crucial lessons for China’s capital market development. First, it highlights the vulnerability of listed companies to shadow control by individuals without formal positions or ownership. Second, it demonstrates how complex transaction structures can be used to obscure fund flows and potentially divert company resources. Third, it shows the importance of independent directors and audit committees in challenging management narratives when red flags appear. Finally, it underscores the need for stronger regulatory oversight and enforcement to protect minority shareholders’ interests. The case has attracted significant attention from investors, regulators, and corporate governance experts watching how authorities will handle such a complex case involving alleged fund diversion and hidden control.
The Path Forward for Jinlitai
Jinlitai’s survival depends on several critical steps. The company must fully cooperate with regulatory investigations to establish the truth about fund flows and control relationships. The board must resolve its internal conflicts and either validate or refute the allegations against management and the shadow controller. Shareholders need to carefully consider Hainan Dahe’s proposal for board reconstitution during the upcoming temporary meeting. Most importantly, transparency must replace the current opacity surrounding company operations and decision-making. As China’s automotive industry faces economic headwinds and increased competition, having a stable and ethically managed coatings supplier remains important for the supply chain. How this crisis resolves will signal either progress or setbacks in China’s corporate governance reform efforts. Investors and stakeholders should monitor regulatory announcements and shareholder meeting outcomes closely, while demanding greater accountability from listed companies and their management teams.
