Yangtze River Pharmaceutical Delisted for Major Violations: Over 700 Million Yuan in Fictitious Revenue Over Three Years, Pharmaceutical Industry Financial Fraud Regulation Tightens

Image source: Visual China

Blue Whale News, March 13th (Reporter He Tianjiao) On the evening of March 12th, Changjiang Pharmaceutical Holdings Co., Ltd. (*ST Changyao, 300391.SZ) issued an announcement titled “Changjiang Pharmaceutical Holdings Co., Ltd. Regarding the Decision to Terminate Stock Listing.” According to the announcement, *ST Changyao will enter the delisting risk warning period starting March 20, 2026. Upon expiration of this period, the Shenzhen Stock Exchange will delist the company’s shares. The main reason for *ST Changyao’s delisting is its three-year-long financial fraud, which is also a reflection of the frequent financial misconduct in the pharmaceutical industry.

Over 700 million yuan in revenue was artificially inflated over three years

On January 22nd this year, the Shandong Securities Regulatory Bureau of the China Securities Regulatory Commission issued an administrative penalty decision, targeting Changjiang Pharmaceutical Holdings Co., Ltd. (formerly known as Kangyue Technology Co., Ltd., hereinafter *ST Changyao).

The decision states that *ST Changyao committed the following violations: In November 2020, *ST Changyao acquired a 52.75% stake in Hubei Changjiang Xing Medical Co., Ltd. through cash payment. In December of the same year, Changjiang Xing was included in *ST Changyao’s consolidated financial statements. The actual controller of Changjiang Xing, Luo and others, made performance commitments regarding net profit and other indicators for 2020-2022. After the acquisition, Luo continued to serve as chairman and general manager of Changjiang Xing, fully responsible for its operations.

From 2021 to 2023, the subsidiaries of Changjiang Xing—Hubei Changjiang Yuan Pharmaceutical Co., Ltd. and Hubei Xinfeng Pharmaceutical Co., Ltd.—faked inbound and outbound warehouse documents, confirming revenue without actual sales, resulting in *ST Changyao’s annual reports for 2021-2023 artificially inflating operating income by 215.3238 million yuan, 283.7366 million yuan, and 233.6346 million yuan respectively, accounting for 9.12%, 17.57%, and 19.51% of the disclosed revenue for those periods; inflated total profits by 56.4014 million yuan, 63.3752 million yuan, and 43.705 million yuan, representing 35.62%, 88.23%, and 6.42% of the total profits disclosed. Additionally, due to the failure to reasonably recognize losses on the Changjiang Weichuang Chinese Medicine City project in 2022, *ST Changyao’s 2022 annual report falsely increased profits by 4.5524 million yuan, accounting for 6.34% of the total profits disclosed. This constitutes a major illegal violation warranting mandatory delisting.

In summary, *ST Changyao’s 2021-2023 annual reports contained false records, violating the Securities Law. The Shandong CSRC decided to order corrections, issue a warning, and impose a fine of 10 million yuan.

Public information shows that *ST Changyao mainly engages in processing traditional Chinese medicine herbs and decoction pieces, with business scope covering drug manufacturing, wholesale and retail, and medical devices. Besides financial fraud, *ST Changyao faces multiple risks such as declining performance, overdue debts, lawsuits, frozen accounts, and large tax arrears. According to its third-quarter report last year, its revenue for the first three quarters of 2025 was 105 million yuan, with a net loss of 210 million yuan. Furthermore, the announcement indicates that by the end of last year, *ST Changyao had over 1.1 billion yuan in interest-bearing debt, including 390 million yuan overdue, with collections below expectations.

*ST Changyao’s financial fraud is a typical case of “making things up out of thin air,” involving forged documents to fake sales, which is a serious form of financial misconduct. Additionally, by unreasonably recognizing engineering losses, it further inflated profits, exposing a complete failure of internal controls. The systematic fraud over three consecutive years with large amounts has triggered the delisting provisions under the “Major Illegal Violations” clause of the Growth Enterprise Market Listing Rules. Under the “zero tolerance” regulatory approach, delisting has become inevitable.

The pharmaceutical industry is a high-risk area for financial fraud

In fact, *ST Changyao is just a typical example of the frequent fraud in the pharmaceutical industry. Due to its long supply chain, high sales expenses, and lengthy R&D cycles, the industry has a high risk of financial misconduct and is a key focus of regulatory oversight.

The most notorious case is Kangmei Pharmaceutical (600518.SH), once a “white horse” stock in the pharma sector, which engaged in systemic financial fraud with enormous amounts involved and severe impact. According to the CSRC investigation, from 2016 to 2018, Kangmei systematically committed financial fraud through fictitious transactions, forged vouchers, and misappropriation of funds, artificially inflating revenue by 27.515 billion to 29.128 billion yuan, operating profit by 3.936 billion to 4.101 billion yuan, and cash holdings by 88.681 billion yuan. It also inflated fixed assets by 1.189 billion yuan, construction in progress by 401 million yuan, and investment properties by 2.015 billion yuan, providing non-operating funds to related parties totaling 11.619 billion yuan. If considering the upper limits of inflated revenue, profit, cash, and other assets, the total fraud amount of Kangmei Pharmaceutical exceeds 125.515 billion yuan, with related-party funds involved pushing the total over 137.1 billion yuan.

In November 2021, Kangmei’s former chairman, Ma Xing Tian, the key figure in the fraud, was sentenced to 12 years in prison for market manipulation and illegal information disclosure, fined 1.2 million yuan, and held liable for 2.607 billion yuan in joint compensation. Former vice chairman and executive vice president Xu Dongjin, along with director and secretary Qiu Xiwei, were also sentenced and jointly responsible for the same compensation amount.

Other cases include Furen Pharmaceutical (delisted), which inflated financial data by billions over two years and was fined millions; Puli Pharmaceutical, which artificially inflated profits by 695 million yuan over two years, accounting for 77% of total disclosed profits, and was delisted for financial fraud, causing huge investor losses; Guizhou Bailing (002424.SZ), which made false records in 2019-2021 and 2023, was fined 10 million yuan, and its stock was renamed “ST Bailing.”

Industry insiders say that pharmaceutical companies’ fraud—especially financial data manipulation—mainly aims to hide excessive sales expenses (possibly involving kickbacks and medical corruption) or to artificially inflate or deflate costs to manipulate profits. R&D investments are high, and results take time, so some companies may adjust financial reports to boost investor confidence.

According to the CSRC’s January 2026 disclosure, since 2024, the CSRC has investigated 159 cases of financial fraud, imposed administrative penalties in 111 cases, and 18 seriously fraudulent companies have met the criteria for mandatory delisting. In response to the frequent misconduct, Feng Yidong, a member of the National Committee of the Chinese People’s Political Consultative Conference, recently told 21st Century Business Herald that measures should be taken from three aspects: increasing penalties, improving compensation mechanisms, and clarifying responsibilities. He emphasized that penalties for major shareholders and responsible persons should be intensified. For companies involved in fraud, responsibility should be traced back to individuals, with penalties comparable to those for public officials involved in corruption, including criminal charges for severe cases. Additionally, responsible persons should be required to buy back shares at the average stock price over the 20 trading days before the misconduct was disclosed, and measures such as “restrictions on high consumption” and “exit bans” should be implemented.

Although financial fraud is relatively prominent in the pharmaceutical industry, overall it remains a minority issue. Under strict regulation, the industry is moving toward compliance. The continuous improvement of the comprehensive punishment and prevention system for financial misconduct, along with cases like Puli Pharmaceutical and Changjiang Pharmaceutical being lawfully prosecuted, reflects the increasing deterrent effect of regulation. The *ST Changyao case serves as a heavy warning to all listed companies, especially those in the high-pressure anti-corruption environment of the pharmaceutical sector.