The encyclopedia · Finance & Accounting · Financial decision · 2015–2019
Kangdexin reported ¥15 billion in cash — then defaulted on a ¥1 billion bond
The 'world's largest pre-coating film producer' inflated profits by ¥11.9 billion over four years. The cash on its balance sheet was in its parent's account.
Kangdexin · 2019-01
What happened
Kangdexin Composite Materials, founded in 2001 by Zhong Yu, listed on Shenzhen's SME board in 2010. It claimed to be the world's largest pre-coating film producer and at its peak carried a market value approaching 100 billion yuan. Analysts classified it as a 'white horse' — a high-quality growth stock with consistent reported profits.
In January 2019, Kangdexin defaulted on two tranches of short-term commercial paper (18康得新SCP001 and SCP002). The default was inexplicable: the company's most recent balance sheet showed approximately 15 billion yuan in cash. A company with that much liquidity does not miss a 1-billion-yuan bond payment. The contradiction triggered a CSRC investigation.
The CSRC found that from 2015 to 2018, Kangdexin had inflated its reported profits by 11.9 billion yuan. The mechanism was a cash-pooling arrangement with its parent, Kangde Group: the listed company's bank balances were swept into the parent's account each day, so the cash shown on Kangdexin's balance sheet was not actually available to Kangdexin. The company reported profits it had not earned and held cash it did not have.
On 5 July 2019, the CSRC issued an administrative penalty and market-entry ban against Kangdexin and related parties. The company was subsequently delisted from the Shenzhen Stock Exchange and transferred to the share-transfer system. The case set an A-share record for the scale of profit inflation.
Why it happened
- Cash pooling made the fraud invisible to audit: bank confirmations showed the balance, but it was swept to the parent overnight — technically true, substantively false
- The 'white horse' reputation created confirmation bias: consistent growth was taken as evidence of quality rather than a signal to ask how it was sustained
- The parent controlled the listed entity's treasury, so the legal separation between them — the basis for the listing — was fictional in the one dimension that mattered: who held the cash
- The bond default was the only event that could expose the fraud, because it forced the question 'where is the money?' — a question that no amount of reported profit could answer
The lesson
Cash on a balance sheet is a claim, not a fact. The ¥15 billion was real in the confirmation and absent from the account. The question is not 'how much do they report?' but 'who controls it?'
Aftermath
Kangdexin trades on the old third board as 康得3 (400102). Zhong Yu was subject to criminal proceedings. The case is cited alongside Zhangzidao and Kangmei as one of the three defining A-share frauds of the 2019 regulatory cycle.
Sources
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