Red Flags at China MediaExpress: Significantly Mismatched Filings in China, U.S.
My last article on China MediaExpress (CCME) discussed why the "official document" provided by the company lacked the reference number needed and thus was without administrative power. I also presented evidence that the company faked national level science awards for its patent.
The rumor has it that the companys SAIC (State Administration for Industry and Commerce of China) filings mismatched its SEC numbers, and in this article I will present to the readers the original documents.
Fa Piao Is How the Chinese Government Fights Fraud
Before I delve into the evidences, I would like to comment on the significance of SAIC report. Many Chinese small-cap investors have been convincing themselves that the mismatch does not matter. In order to dodge tax, companies in China are under-reporting their revenues and thus such mismatches are common. If we were to believe that the SEC numbers are truer than the SAIC numbers, we would have to believe that the Chinese government is losing a lot of tax.
While tax dodging is rampant, the Chinese government is no patsy. What it came up is Fa Piao (invoice) system. While companies in the U.S. can issue their own invoices, companies in China have to issue invoices using anti-forgery invoices purchased from the government. A good description is here.
For the advertising business, the government charges 3-5% of revenue as business tax for the service rendered. The government knows the revenue
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