The China Securities Regulatory Commission (CSRC) had launched an investigation on the alleged securities-related irregularities committed by dairy firm Yili Corp.

The commission had informed the Shanghai-listed firm on Wednesday that it was suspected of breaking securities laws and regulations and that the watchdog had decided to launch a formal investigation into the matter and the case would be put on record.

Although the company revealed the move in a circular issued Thursday in major securities newspapers, neither it or the regulator gave any further information on the issue Thursday.

The Yili spokesman was unavailable for comment.

But information released earlier reveals that the company and one of its subsidiaries were involved in controversial treasury bond trading over the past two years, which had witnessed losses in investment but was not properly disclosed to shareholders as required.

The company tried to make up for the matter and disclosed the relevant investments late in June, but this had already caught the attention of the commission, which sent an investigative panel to the company.

Yili, headquartered in north China's Inner Mongolia Autonomous Region, is one of the nation's leading domestic dairy producers.

It earned a profit of 319 million yuan (US$38.5 million) last year, a year-on-year increase of 49.5 percent, according to the company's 2003 annual report. Its turnover also increased by 57 percent to reach 6.3 billion yuan (US$760.8 million) in the year, the biggest of all companies in the industry.

But analysts warned that Yili's reported problems have certainly tarnished the firm's public image.

The effect of this is already being felt, with Yili's shares closing down 0.81 yuan (10 US cents) to 8.99 yuan (US$1.086) yesterday.

An analyst at Harvest Fund Management Co said that the Yili incident reflects corporate governance flaws that exist in many of China's listed companies.

It is also a systematic flaw in China's stock market, he said.

Listed companies should be aware of the fact that such fraud will only damage their own reputation and investor confidence.

However, the Yili case, which is still under investigation, is unlikely to have a major impact on the milk industry as a whole, he said, but the sector is already having a hard time due to April's fake milk powder scandal in Fuyang, east China's Anhui Province.

And Yili is not the only listed firm that has got into trouble over information disclosure problems.

Three other listed firms also recently received similar notices from the commission about the investigation into their irregularities, including Jiangsu Qionghua, a high-tech company in east China's Jiangsu Province that was recently listed on the new small and medium-sized enterprise board in Shenzhen, but was soon discovered to have included false information in its prospectus.

A commission spokesman said that institutions and individuals liable for the fraud would be punished accordingly, including the sponsors.

He said that the watchdog would take a tough line on irregularities concerning information disclosure and hoped all market participants would behave themselves and obey market rules.

(China Daily July 23, 2004)