A pharmaceutical company that produces growth hormones is a the centre of what its reportedly China’s first ever lawsuit concerning the dissemination of false stock market rumours by short sellers seeking to depress share prices.
State-owned media reports that a Mr. Ma is the plaintiff in a lawsuit filed at the Gulou District of Court of Nanjing against an IT company in Jiangsu province and a healthcare company in Fujian province, alleging they spread false reports that led to a 30% drop in the share price of pharmaceutical company Changchun Gaoxin (长春高新).
In August of last year, rumours first began to spread in China claiming that the Zhejiang province government had decided to include certain growth hormones in its centralised procurement catalogue.
Recent reforms of China’s healthcare system have seen local authorities engage in negotiations with drug manufacturers to reduce drug prices, in a bid to use centralised procurement to alleviate the cost burden on patients.
The inclusion of drugs in procurement initiatives can have a negative impact on the profitability of enterprises due to the price discounts they entail, putting pressure on their stocks. A number of Chinese pharmaceutical companies have seen sharp drops in their share prices following the inclusion of their products in procurement lists.
Changchun Gaoxin – an A-share company involved in the production of growth hormones with a sizeable market share, saw its stocks severely impacted by the rumours concerning the Zhejiang province government’s decision to include its products on the centralised procurement list. The company’s share price declined by over 30% after the rumours first spread.
Reports subsequently emerged indicting that on 18 August – the date rumours in relation to the centralised procurement of growth hormones by the Zhejiang province government first began to spread, the volume of securities lending for the short-selling of Changchun Gaoxin saw a sharp increase to over 34 million yuan. Short sellers would have been able to reap substantial profits had they repurchased the Changchun Gaoxin stocks following the steep plunge in its share price.
The pharmaceutical procurement office for Zhejiang province has since announced that growth hormones produced by Changchun Gaoxin were not included in its procurement catalogue, proving the rumours to be untrue.
The two companies serving as defendants in the lawsuit filed by Mr. Ma in the Gulou District Court of Nanjing are alleged to be responsible for spreading the rumours that led to the plunge in Changchun Gaoxin’s share price.
Domestic commentators have hailed the case as an important step towards improving trust and security on China’s capital markets.
“It is necessary to uphold fairness and justice for the capital market,” writes economic commentator Cao Zhongming in an opinion piece published on Sina.
“False stock market rumors can often cause immense harm, and the case of Changchun Gaoxin is the best proof of this.
“Its stock price fell by more than 30% in the short term, which is a serious blow not only to investors but also to the reputation of the listed company. It is only right to crack down on spreading rumors or false news in the market.”