There is an old saying: “Before one wave subsides, another rises.” There is another saying: “Blessings rarely come in pairs, but misfortunes never come singly.”

Before the troublesome matter with Jing Tianping and “Wujie Live” could even be settled, Fanhai Group encountered yet another round of short selling on NASDAQ. The short sellers “borrowed” a massive amount of Fanhai Group shares to sell first, intending to buy them back at real-time market prices and return them after an expected sharp drop occurred—selling high and buying low to profit from the price difference.

A famous American mega-short seller, who was also the head of the world’s largest hedge fund, stated during an interview: “Right now is a great time to short Fanhai.” He added that he himself was currently shorting Fanhai and had already increased the short position against Fanhai in his investment portfolio to around 20%.

In his subsequent answers, he referenced several problems facing Fanhai Group:

First, due to competition with Qinghui, market expansion had become extremely difficult. He used an analogy: Fanhai’s products blocked all links to Qinghui’s products. Users could not share short video links from Qinghui within Fanhai’s social networking tools, while product information from Fanhai—even including Fanhai’s latest games—could not be displayed beneath Qinghui’s short videos. Furthermore, the e-commerce platforms, numerous products, and even investment products on both sides—including food delivery apps, apartment rental apps, car rental apps, ticket booking apps, travel apps, and so on—were completely unable to use the other side’s payment tools. Meanwhile, Qinghui’s short video platform was the most critical Web 2.0 media, growing ever more influential and squeezing out the time users spent on other platforms, causing those other platforms to decline day by day. As a result, things would become difficult for Fanhai.

Second, Fanhai Group’s gaming business was a major source of profit. However, in 2018, Chinese authorities suspended the issuance of game publication numbers, and by August, even the application channels for publication numbers were closed. To date, the authorities had not issued a single publication number for half a year. For Fanhai, this could even prove fatal, as the official stance toward “gaming” in recent years had been far from friendly.

Third, Fanhai Group’s financial business was likewise a major source of profit, yet financial regulation had grown increasingly frequent and strict in recent years. Several of Fanhai’s financial tools, such as certain lending businesses, might suffer heavy blows from policy changes. Moreover, the AI lending program developed with heavy investment faced regulatory unknowns due to its automated approval process, leaving it potentially unable to deliver growth. He also noted that financial services and gaming each accounted for one-third of Fanhai’s profits.

Fourth, the only remaining pillar, the advertising business, was also enduring the impact of Qinghui Group’s short videos and live streams. For instance, major enterprises that originally allocated massive marketing budgets to long-form videos had shifted a large portion of those funds to short videos instead.

Fifth, in emerging tech sectors such as artificial intelligence and cloud computing, Fanhai Group possessed zero technological advantage compared to foreign players. In the future, these fields would undoubtedly be dominated and controlled by international giants; he saw no potential for new growth points.

Sixth, they suspected Fanhai Group of engaging in certain fraudulent practices. For example, a certain second-hand real estate app contained a vast number of fake listings. Brokers would first show target clients some of these “fake listings”—typically high-priced and in poor condition—and then suddenly inform them that a remarkably good property had unexpectedly become available. By comparison, clients would immediately sign the contract. Another scenario worked in reverse: using low-priced, high-quality “fake listings” to lure clients in, only to tell them that the unit was no longer available, but another unit was also very good and in high demand. Panicked, clients would still sign immediately.

Finally, there was even a seventh point: according to reliable sources, a rift had formed between Fanhai Group’s CEO Jing Hong and Jing Tianping, the CEO of “Tianping Supermarket.” Tianping Supermarket might pull out, and a severe conflict appeared to exist between the two sides with endless future trouble, directly impacting Fanhai Group’s crucial businesses such as “fresh groceries.”

In fact, even prior to this interview, Fanhai Group’s short interest had already been extremely high. Starting last year, friction between China and the United States escalated, leaving the prospects for all Chinese corporate products in the US uncertain. The “technology” sector was particularly sensitive, with several products targeting overseas markets already facing security allegations—especially information platforms such as video services. The opposing side’s logic was easy to understand: these platforms functioned similarly to media and could not be controlled by China.

As soon as the interview came out, Fanhai’s stock price plummeted accordingly, with major news outlets reporting all at once:

[International Capital Shorts Fanhai; Fanhai Stock Drops Over 8% in a Single Day.]

[Grey Eagle Fund Shorts Fanhai; Fanhai Has Yet to Respond.]

[Fanhai Hit by Record Short Selling; S3 Partners Data Shows Short Positions Surged by 50%, Fanhai Says ‘Pressure Is Immense’!]

And also:

[Shorting Fanhai Yet Again! Can It Emerge Unscathed This Time?]

On the same day, individual institutions downgraded Fanhai’s stock rating to “Sell,” though brokerage firms such as Morgan Stanley reaffirmed their “Buy” rating.

Jing Hong was well aware that “Grey Eagle Fund” had actually been long-term bearish on Fanhai Group and had been shorting it for several years, betting that Fanhai would run into trouble and waiting for the stock price to reverse course so they could “harvest Fanhai.” This time, facing all those “issues” listed above, he was likely extremely confident, which was why he publicly aired his reasons for shorting—hoping to add fuel to the fire.

Furthermore, during the interview, the head of “Grey Eagle Fund” once again emphasized accounting doubts regarding Chinese enterprises.

This also had historical roots.

The wave of short selling targeting “Chinese enterprises” began roughly eight years ago. At that time, Orient Paper was questioned by Muddy Waters regarding its production scale, revenue, and client authenticity, as Muddy Waters found zero logistics during their on-site factory inspection. Within three years, Orient Paper’s stock price fell over 80%. Subsequently, because China Biotics submitted different financial data to the SAIC (State Administration for Industry and Commerce) and the SEC (U.S. Securities and Exchange Commission)—evading Chinese taxes on one hand while raising U.S. money on the other—Citron Research exposed its dual reporting. Once the report was published, China Biotics was delisted. Afterwards, more and more Chinese enterprises became targets for short selling, getting delisted or transferred to the pink sheets market.

Once short-selling institutions discovered that accounting issues among Chinese enterprises were so severe, a “frenzy” began, resulting in the sequential short selling of dozens of companies. Back then, the standard process involved the short-selling institution first conducting an investigation, informing multiple hedge funds of its shorting plan, and then establishing short positions together with those funds. Next, the short-selling institution would publish negative reports or statements claiming “the target company has issues,” rating agencies would downgrade ratings, panic would spread through the market, and a massive number of shareholders would sell off stock, causing the share price to plunge in an instant. Ideally, this would trigger a wave of class-action lawsuits, driving the stock price down even further. Throughout this process, banks that had previously accepted pledged stock might liquidate positions, causing the share price to plummet even more dramatically. Finally, hedge funds would buy back shares to cover their positions, leaving both the hedge funds and short-selling institutions wildly profitable.

In the early 21st century, large numbers of Chinese enterprises were packaged and taken public in the U.S. by intermediaries, reaching OTCBB through reverse mergers. At the same time, because cross-border auditing was exceptionally difficult, fraud was widespread. Yet in the beginning, the instigators of these practices were inevitably American intermediaries, because Chinese enterprises back then knew nothing about international market rules and lacked the capability to defraud the SEC. Encouraged by these intermediaries, they mistakenly believed that the process of “going to OTCBB first, then transferring to the NYSE or NASDAQ” was very simple, entering the United States in a state of confusion. Later on, however, some Chinese enterprises began actively seeking out intermediaries to do APOs, saturating the market with various scams. In reality, very few Chinese enterprises successfully transferred off the OTCBB, as the requirements for the two boards were on entirely different levels. The 2008 financial crisis masked the riddled-with-holes APOs of Chinese enterprises, making US-listed Chinese stocks Wall Street’s lifesaving straw at the time, which delayed the eventual collapse until 2011. Later on, companies listed via VIE structures also carried financial hazards.

It had to be said that well-founded short selling could help regulators uncover problems, but over time, the nature of the practice began to twist—everyone started looking like a fraudster. There were only so many Chinese enterprises on the OTCBB, a few hundred at most. Short-selling institutions pounced on these companies like hungry wolves. With too many wolves and too little meat, all the problematic companies were caught, yet the short-selling institutions remained unsatisfied, their appetites growing ever larger. Consequently, malicious short selling became increasingly common: cause and effect shared zero connection, conclusions lacked any supporting evidence, investigations were conducted with extreme sloppiness, and there was a clear lack of deep understanding regarding China—merely exploiting investors’ distrust of Chinese enterprises to squander their own hard-earned credibility. Moreover, they were no longer satisfied with the OTCBB and moved to the main boards, turning many high-quality Chinese stocks into short-selling targets, such as the country’s largest education group, the country’s largest community media network… Many companies operating smoothly were suddenly slapped with severe allegations.

Some companies regained market trust through clarifications, achieving V-shaped stock price reversals, and a few even won decisive victories through litigation. Others, where right and wrong remained murky, still suffered massive stock drops after fierce battles, some even choosing to go private and delist, leaving behind unsolved mysteries.

The mega-short seller in this attack against Fanhai, the head of the world’s largest hedge fund Grey Eagle Fund, was extremely skeptical of Chinese enterprises. He was also a leading figure among Wall Street’s “bearish on China” faction. In 2014, he announced for the first time that he was shorting Fanhai, and subsequently made similar statements multiple times:

“Now is a great time to short China. There is no way the Chinese economy can keep growing forever.”

“China’s financial crisis will arrive sooner or later; the dominoes over there seem to have already begun to fall.”

“This company’s performance is too good—so good it’s unreal. I cannot believe such a polished financial report.”

“In my view, among the hundreds of large companies on the U.S. stock market, this company’s financials are the most problematic.”

“I just cannot understand how it can make so much money.”

…

He raised red flags continuously while demonstrating an extreme lack of professionalism, yet miraculously, no matter how much money he lost, he persevered with relentless tenacity. Of course, he was merely a representative; in reality, a vast number of funds were shorting Fanhai based on the exact same logic.

Both Fanhai and Qinghui had repeatedly become targets. Over the past two years, along with various rumors, Fanhai Group’s short interest had reached around 150 million shares, accounting for 7.5% or even higher of the floating shares—far exceeding second place and making it Wall Street’s biggest target during that period.

And this time, building upon the foundation of “bearish on China” and “questioning financials,” fully seven more reasons for short selling had been added to his list. It was no wonder he publicly tossed out his justifications for shorting.

Given Fanhai’s massive scale, suppressing the stock price single-handedly was difficult, yet he was fully capable of rallying the public on top of existing bearish sentiment, adding even more fuel to the fire.

…………

At such a sensitive juncture, Fanhai Group’s major shareholder, Russia’s XX Fund, was reported to have dumped a massive number of Fanhai shares. Reporters discovered on the SEC website that the shareholder had sold off Fanhai stock for three consecutive days last week, exceeding 20 million shares. Although the shareholder stated that this reduction was entirely for the company’s own internal reasons—wishing to increase cash flow to withstand harsh market conditions—rumors quickly ran wild in the market: Did a major shareholder dumping shares signify that they already possessed inside knowledge?

The following day, two funds that had subscribed heavily when Fanhai Group went public also reduced their holdings in Fanhai Group.

Fanhai’s stock price dropped a bit further.

“The top three selling institutions are Deutsche, XXXX, and XXXX, while the top three buying institutions are… Currently, total short interest stands at…” Fanhai Group’s CFO finished her report and asked, “President Jing, shall we hold a conference call tonight? We shouldn’t leave it unaddressed this time, right?”

“Alright.” Jing Hong had always been cautious, so he nodded. “Thank you all for your hard work over there. Issue a clarification announcement before the U.S. market opens as well.”

The CFO said: “Okay. I’ll send the meeting contents and announcement draft to your email shortly.”

Like many enterprises, Fanhai Group’s CFO was a corporate iron woman who usually scolded people quite fiercely when angry—she had not only a loud voice, but also a high pitch.

Jing Hong said: “Mm.”

It was the standard coping strategy: first hold a conference call inviting brokerage analysts, where senior executives would answer questions and resolve doubts one by one regarding all allegations. Afterward, publish a clarification report to respond to accusations and strike back at the shorts. Some companies would also hire independent agencies to conduct investigations.

The CFO asked again: “President Jing, this time is actually slightly different. Should we do a share buyback? CIC over there just mentioned they can absorb some shares as well.”

This was also standard operation: the company buys back its own shares to stabilize the stock price and demonstrate confidence, while partner investment banks increasing their holdings to support the market was another viable approach. CIC, as a state-owned enterprise, often played the role of a “defender,” carrying a slight tone of tragic heroism.

“Not necessary for now.” Jing Hong closed a file and looked at her. “I have other arrangements here.” Fanhai had plenty of cash on its balance sheet, but right now, it was completely unnecessary.

The CFO nodded, asking no further details: “Alright.”

Pausing briefly, the CFO reported the latest update: “Following Morgan Stanley and others, Merrill Lynch has also reaffirmed its ‘Buy’ rating.”

Jing Hong said: “Understood.”

Step three of the trilogy: support from external institutions, including brokerages, government bodies, industry associations, and even creditors—meaning, even the ones owed money aren’t worried, so what are you worried about?

With her report concluded, the CFO let out a long sigh, noting with emotion: “Shorting Fanhai for the nth time—when has any of them ever succeeded before? Why can’t they learn their lesson? Shorting time after time, losing money time after time. How much did those firms shorting Fanhai lose last year and the year before? A few of them came back again this time, always thinking they can turn the tables this time.”

Jing Hong joked: “That’s what you call ‘yet again and again.'”

“Fair enough, President Jing, you certainly surf the internet a lot.”

“It’s alright, just average.” After a brief joke, Jing Hong turned back to business: “However, this time is indeed a bit different. Some of the statements are true, so we still need to handle it carefully.”

“Mm, I know.”

“Alright then, go prepare.”

After the CFO left, Jing Hong walked up to the floor-to-ceiling glass window, looking down once again at the shimmering neon lights below.

Indeed, Fanhai was being shorted by those institutions for the 1,001st time. Short interest was frequently high, often without any respectable reason.

Yet a segment of Wall Street remained undeterred.

A few years ago, Jing Hong had also felt wronged, thinking: Why are you so bearish on Fanhai? Why can’t you just believe that Fanhai can sustain its growth?

But later, he came to understand.

Because Fanhai and Qinghui were the primary representatives of the Chinese economy.

What they didn’t believe could sustain growth wasn’t Fanhai—what they didn’t believe could sustain growth was clearly China itself.

What they were shorting was not Fanhai, but China.