A seismic shockwave is rippling through China's cross-border e-commerce sector following revelations of massive financial fraud at Globalegrow, a subsidiary of publicly traded Crossing E-Commerce (SZSE: 002640). The Shenzhen Stock Exchange's disciplinary actions on September 8 have exposed systematic accounting manipulations that artificially reduced reported losses by over $150 million.
Regulatory Hammer Falls on Corporate Leadership
The exchange issued scathing penalties including public censures and executive disqualifications. Xu Jiadong, then serving simultaneously as chairman, general manager, CFO, and board secretary, received the harshest punishment—a public denouncement and 10-year ban from holding executive positions at listed companies.
Independent directors Zheng Tingying and Sun Junying, along with supervisory board members Yang Jianxin, Zhou Chunyan, and Li Jie, faced formal criticism. The sanctions reflect regulators' growing intolerance for financial misconduct in China's rapidly maturing e-commerce sector.
Fraud Mechanics: How $150 Million Disappeared
Investigators uncovered multiple accounting irregularities spanning 2020 and prior years. Globalegrow improperly reclassified receivables as inventory, delayed expense recognition, manipulated logistics cost timing, and failed to account for fixed asset losses.
The subsequent restatement revealed staggering adjustments: pretax losses shrank by $90.5 million (32% of originally reported figures), while net losses decreased by $131.4 million (39%). Ultimately, the subsidiary understated total losses by $109.9 million (39.2% of disclosed amounts) and net losses by $150.8 million (44.7%).
Repeat Offender Faces Mounting Consequences
This marks Crossing E-Commerce's second public censure within 12 months, triggering punitive fines under exchange rules. The company's three-year history includes two financial fraud cases and three violations concerning stock repurchases and reductions—a pattern eroding investor confidence.
Business Collapse Accelerates
The scandal compounds Crossing E-Commerce's operational struggles. After peaking in 2019, revenues collapsed below $1 billion despite a 2021 return to profitability. The 2022 sale of subsidiary Patosun and Globalegrow's bankruptcy left gaping holes: first-half revenues plunged 35.9% year-over-year to $339.4 million, with net profits down 98.5% to just $800,000.
Export e-commerce revenues—once the company's backbone—crashed 39.7% to $24.8 million (7.3% of total sales). Proprietary website sales dropped 75.6%, while third-party platform revenues collapsed 94%.
Industry Implications: Compliance Becomes Existential
The case serves as a watershed moment for China's cross-border e-commerce sector. As regulators and platforms intensify crackdowns on tax evasion, fake reviews, and unfair competition, compliance transitions from optional to existential.
The incident highlights critical governance failures, particularly among independent directors and supervisors who neglected oversight duties. Analysts suggest the scandal may accelerate industry consolidation, favoring operators with robust compliance frameworks.
For cross-border sellers—whether publicly listed or privately held—the message is clear: in an era of heightened scrutiny, sustainable growth requires scrupulous adherence to financial and operational standards. The $150 million accounting deception ultimately cost Crossing E-Commerce far more in reputation, leadership, and market position than any temporary financial relief it provided.