US$3.8 billion Lost: How A Single Man Destroyed Fifteen Listed Companies
By: Alex Lew
Tags: Telecom, Fraud, China Business, Trade Finance

Sui Tianli and his firms defraud over fifteen telecommunication companies through trade transactions that never arrives.

15 Listed Companies Involved Within Two Months

According to the announcement by Shanghai Electric on 31 May, there is a huge risk that its holding company Shanghai Electric Communication Technology Co,. Ltd. may not be able to recover 40% of its overdue credit sales.

As of 31 May, the balance of Shanghai Electric Communication’s overdue receivables was RMB8.7 billion (US$1.3 billion), with an inventory impairment risk of RMB2.2 billion (US$0.3 billion). Its commercial bank loans totalled RMB1.3 billion (US$194 million), while the shareholder loans amounted to RMB7.8 billion (US$1.20 billion). On 17 August, Shanghai Electric confirmed that this situation ultimately caused a total net loss of RMB5.6 billion (US$867 million) to RMB5.8 billion (US$898 million) in the company’s net profit attributable to the parent company.

Afterwards, several listed companies issued major risk warning announcements, which involved the same issues as Shanghai Electric.

In just over two months, the amount of risk involved in a total of 15 companies exceeded RMB24 billion (US$3.72 billion).

Risk Factors

Judging from the announcements issued by various companies, the companies involved are typically subsidiaries of listed companies operating in the telecommunications industry. These companies first sign sales contracts with downstream customers, charge a 10% advance payment, and deliver them within 180–295 days after payment. After that, they sign a purchase contract with an approved upstream supplier and pay 100% of the advance payment. The supplier’s lead time is 90–180 days.

This method only involves simple processing and resale, and the entry barrier seems to be very low. Even Kanglongda, a manufacturer specialising in special and ordinary labour protection gloves, can win sales contracts worth hundreds of millions of dollars a year after entering the market. According to investigations by AI Finance and Economics, taking ST Xinhai’s 2017 data as an example, the company purchased raw materials from Ningbo Hongzi, processed them and sold them to Fushen Industrial and Beijing Zhongdian Huisheng. The main cost comes from raw materials, accounting for as high as 98.55%, while labour cost only makes up 0.11%. New Wealth has estimated that, with ST Xinhai’s prepayment of RMB368 million (US$57.02 million) for the entire purchase (10,645 sets) of communication kits, the total sales can reach RMB488 million (US$75.62 million). The turnover allows ST Xinhai to make RMB120 million (US$18.59 million) easily. For small companies, this form of profit is rather attractive.

Due to the confidentiality requirements of the industry, many companies’ annual reports will only mention customers without involving specific names. However, many companies did not receive the goods after paying the suppliers full payment. Some companies did not even receive the final payment from the customer after completing the processing and acceptance of the goods. It was not until recently that these listed companies discovered that the upstream suppliers and downstream customers involved were inextricably linked. In the end, it all pointed to the same person, Sui Tianli.

Biography of Sui Tianli

Heico Communications’ 2020 annual report provided a detailed resume of Sui Tianli.

Sui Tianli was born in August 1961, and he has a college degree. He served in the army from 1979 to 1994. Upon demobilisation, he was assigned to work in the Jiangsu Provincial Government. Since November 1998, he has been the director of Shanghai Xingdi Communication Engineering Research Institute.

Sui Tianli has 30 years of work experience in the field of information and communication applications. He is the head of “China Electronics Industry Science and Technology Exchange Center”. He also won the second prize in military science and technology. He presided over completing several notable projects such as the National Internet of Things Demonstration Project, Heilongjiang Reclamation Information Project, the People’s Liberation Army Field Wireless Image Transmission System, and the Navy Quantum Communication Experimental Project, to name a few.

According to Aiqicha, Sui Tianli is the shareholder of 6 companies, the legal person of 9 companies, and the executives of 18 companies.

Sui Tianli’s “Telecommunications”

As Sui Tianli has been working in the general information field for many years, the trading network formed by the enterprises under his control in the communication equipment business is extensive and complicated.

Taking Zhongli Group as an example, Jiangsu Zhongli Electronic Information Technology Co., Ltd., which Zhongli Group has a stake in, purchases raw materials for telecom services from upstream suppliers Highsea Telecom and Ningbo Hongzi Communications, and then processes them into products and sells them to Aerospace Shenhe, Jiangsu Huihong International Group Zhongjin Holdings Co., Ltd., and Zhongli Group. Zhongli Group also sells its products to its downstream customers, such as Shanghai Electric’s subsidiary company Shanghai Electric Communication Technology Co., Ltd. The subsidiary company’s customers are Fushen Industry, Nanjing Changjiang Electronics, Beijing Capital Venture Group Co., Ltd. Trading Branch and Harbin Industry Investment Group Co., Ltd.

The flowchart shown below will provide a more straightforward presentation of how the companies are interconnected.

Now the upstream companies Highsea Telecom and Ningbo Hongzi Communications have their supplies overdue with no refund, while downstream companies Fushen Industry and Nanjing Changjiang Electronics have their payments outstanding. Among them, the actual person in charge of Heico Communications and Aerospace Shenhe is Sui Tianli. Fushen Industrial, Nanjing Changjiang Electronics and other companies are being recommended by Sui Tianli as well.

To put it simply, the companies controlled by Sui Tianli only need to pay 10% of the purchase price for goods from the listed company. In comparison, the listed company must pay 100% of the purchase price to another company of Sui Tianli to purchase raw materials. Essentially, all the money went into Sui Tianli’s pocket.

Why are listed companies suffering?

Apart from the huge profit temptation, Sui Tianli’s experience in the industry has led many listed companies to believe in him. In addition, the overlap of information and personnel in many companies further increases his credibility. With some listed companies accustomed to making short trade and inflating their income, they easily fall prey to fraudulent transactions.

1) Years of industry experience allowed Sui Tianli to have an extensive network in the field of telecommunications

In addition to the aerospace Shenhe controlled by Sui Tianli, the downstream suppliers involved in these trades include the following: Fushen Industry, Nanjing Yangtze River Electronics, Beijing Capital Group, Harbin Industrial Investment Group, Harbin Comprehensive Bonded Group, Shanghai Electric Communications, Zhongli Group, China Tianli Aviation Technology Industrial Company, 55 Institute of China Electronics Technology Group, China Power Technology (Hefei) Bowei Information Development Co., Ltd. (abbreviated as “China Power Bowei”). Most companies have a solid background in state-owned assets and are trustworthy partners. Moreover, Sui Tianli also helped these companies obtain exemption letters from relevant departments and successfully applied for exemptions from information disclosure to the exchange, gaining the trust of many companies.

2) Overlaps in Corporate Personnel

Hongda New Materials, another company controlled by Yang Xin, is related to Sui Tianli’s company Ningbo Hongzi and Ningbo Xingditong. These companies use the same mailbox, mobile phone number, and office building for industrial and commercial registration, with establishments only two months apart. Regarding this, Hongda New Materials responded that due to business cooperation and other reasons, it helped deal with related matters at the beginning of the establishment of Ningbo Xingditong Company. The two parties have only business dealings with no other connections.

On the other hand, the second-largest shareholder in Shanghai Electric’s subsidiary Shanghai Communication Technology Co., Ltd. is Sui Tianli’s Shanghai Xingditong (28.5%). The sixth-largest shareholder Shanghai Naipan Enterprise Management Partnership (6%), is also owned by Sui Tianli. Sui Tianli himself serves as the deputy director of Shanghai Communication Technology. Of the six directors of Shanghai Communication Technology Co., Ltd., only one representative from the parent company, which holds 40% of the shares. This is not in line with the shareholding ratio.

3) Listed companies use false transactions to inflate revenue

Documents from China Judgements Online, such as the Civil Ruling of the Second Instance of the Sales Contract Dispute of a Limited Company, show that Yu Yang has used companies under his control (Nanjing Hengerhui, Nanjing Kuheng etc.) for many years. He obtained the support of CLP Bowe through the bribery of Tan Jianbo to build these companies into fake or “dummy” companies. The trading platform even forged the corporate seals of CLP Bowe and №55 Institute to conduct fraudulent trades with listed companies such as *ST Huaxun. From the information disclosed by ST ECCOM, it can be known that CLP Bowe was *ST ECCOM’s fourth-largest customer in 2015 and the third-largest customer in terms of account receivable in 2017.

When auditing the 2019 annual report, Daxin Certified Public Accountants found that Fushen Industry and Tianli Aviation, both customers of Huaxun Ark, had the same handwriting on the receipt documents. The employees of the company stated that these documents were filled out by Shanghai Xingditong staff. In addition, many cast doubts over ST ECCOM’s use of the transactions and inventory of prepaid accounts. The audit agency mentioned that they are “unable to express any opinion” in the internal audit report.

On 6 August 2021, the Financial Associated Press stated that Sui Tianli controls at least two of the defaulting customers of Hongda New Materials. These companies signed the contract, but the transaction was actually between Hongda New Materials and Sui Tianli’s companies. The “dummy” companies only charge an invoice management fee of about 3%.

Sui Tian Li disappeared, the incident has yet to be resolved

On the evening of 2 August, Heico Communications issued an announcement stating that the company could not contact the persons-in-charge, Sui Tianli and Liu Qing, the sister-in-law of Sui Tianli’s spouse. According to the company, Sui Tianli is currently involved in the case and investigated by the public security agency.

On 27 July, the “Incorruption Shanghai” public account announced that Zheng Jianhua, chairman of Shanghai Electric (Group), was suspected of serious violations of discipline and law and is currently undergoing disciplinary review, supervision and investigation by the Shanghai Municipal Commission for Discipline Inspection.

On 5 August, Huang Ou, executive director and president of Shanghai Electric, jumped off the building and committed suicide.

On the evening of 13 August, Hongda New Materials issued an announcement stating that its person-in-charge, Yang Xin, had been filed for investigation and the company could not get in touch with him.

The situation remains unresolved, and the mystery will only be revealed upon Sui Tianli’s return. One thing that can be confirmed is that things are incredibly complicated in the “telecommunications bureau” created by Sui Tianli. There may even be a combination of trade finance and other fake transactions. This incident also exposed the lack of internal management of listed companies, especially companies with state-owned assets. The agents of some state-owned enterprises were bought over because due to a lack of supervision. All factors gave rise to a chaotic and disastrous situation.