Questions raised over ‘China fever’ development on Mersey

By Lucy Hornby in Beijing, Jamil Anderlini in Jiangyin and Andrew Bounds in Manchester

The faded red banners welcoming the “Wirral council leaders” were propped against locked glass doors just inside the office of Sam Wa Resources Holdings on Tuesday in Jiangyin, a city on the banks of China’s Yangtze River.
This is the home of the company whose chairman Stella Shiu, is supposed to be the driving force behind a large Chinese investment in Britain.
However, there was no indication of a thriving business in the small dusty office, let alone a large mining and trading conglomerate, ready to invest millions of pounds to regenerate the Mersey riverside in northwest England.
The Peel Group, a British developer that is proposing a £10bn project along the Mersey river, signed a joint venture with Ms Shiu last year to attract tenants to the International Trade Centre, a £175m business development planned as part of the waterfront scheme.
This project is among a series of Chinese investments presented as proof that the British government’s business-oriented approach to diplomacy is paying off as David Cameron, UK prime minister, prepares to fly to Beijing this weekend.
However, a close look at Sam Wa suggests that not all of the deals are equal.
At one end of the spectrum are Chinese state-owned investors such as China General Nuclear Power Group, which will take a one-third stake in the French utility EDF’s project to build a £16bn atomic power station in southwest England.
These companies are effectively arms of the Chinese state which enjoy access to cheap credit from state banks and the full backing of the ruling Communist party.
At the other end of the scale are investors such as Ms Shiu, whose partners in other ventures include an Iranian pomegranate juice exporter and an investment adviser in New Jersey who recently settled US Securities and Exchange Commission allegations of fraud and violation of securities regulations.
Corporate filings in Hong Kong show that Ms Shiu changed her Chinese name after a 2008 ruling by a Hong Kong court that declared her bankrupt for failure to pay a loan.
Several companies registered under her former name have been dissolved on the Chinese mainland, including one in Jiangyin, and the address of Sam Wa’s headquarters in Beijing turns out to be a closely guarded military hotel that does not allow outsiders to enter.
“There are a lot of governments and companies in the west that are starved of capital, and so when the promise of Chinese billions comes along they tend to get ‘China fever’. Unfortunately it can sometimes be fatal,” says James McGregor, chairman for greater China at Apco Worldwide and author of the book No Ancient Wisdom, No Followers.
“In China you need to do due diligence on investors.”
Peel executives have made frequent trips to China, often with British local government officials in tow, and Ms Shiu has visited Liverpool many times.
On a visit in October, she helped Lindsey Ashworth, Peel Group development director, to open Peel’s latest office project.
He joked that he picked Ms Shiu as a partner because of her ability to drink him under the table.
On May 28 2012, Peel signed a joint venture with Ms Shiu at a ceremony in a Beijing hotel, attended by Lord Green, UK minister of state for trade and investment, and Phil Davies, Wirral council leader.
Peel’s proposed International Trade Centre would be built on desolate former docks on the Wirral peninsula, near Liverpool, one of the most deprived cities in the UK.
Once the second biggest port in the world, many of the wharves along the River Mersey are crumbling.
Demolition of existing buildings on the site has not yet begun.
Ms Shiu is supposed to help attract up to 1,000 companies from across Asia to move into 2.5m sq ft of self-contained units where they can exhibit, sell and distribute goods into the European market.
During his China visit, Mr Cameron plans to highlight the Merseyside scheme as an example of regeneration projects in the UK that are ready to be marketed to Chinese investors.
Council-owned investment agencies in Liverpool and the Wirral have maintained that Ms Shiu is a “high-ranking member of the Chinese government” who has put £25m into the project, echoing claims made in the local press.
Their publicity talks of Chinese government approval and the multibillion-dollar size of Ms Shiu’s group.
Liverpool Vision, the city investment agency, said it made the claims in “good faith” while Invest in Wirral declined to comment.
Richard Kemp, leader of the opposition Liberal Democrats on Liverpool city council, said local authorities should “remove their rose-tinted spectacles. There has been lots of talk and little result.”
The Financial Times was unable to find any evidence that Ms Shiu works for the Chinese government.
In Shanghai, Sam Wa’s address is a tiny cramped office belonging to an organisation called “Shanghai Enterprise Top 100 Association”.
Employees there were busy this week preparing Chinese-language pamphlets featuring photos of Ms Shiu with Mr Ashworth, in anticipation of Mr Cameron’s visit.
A visit to another Sam Wa address, at the prestigious Yintai Office Tower in Beijing, revealed no sign of the company.
The group’s stated interests include electronics manufacturing, import and export, timber trading and a large mining concession in the Philippines, described on the International Trade Center website as a gold mine.
On Chinese web portals, Sam Wa has posted offers to sell laterite ore, a type of iron ore with nickel content that is much sought after by Chinese steel mills.
In addition to Sam Wa, Ms Shiu is a partner in the Warner Fund, a Beijing-based private equity fund that offers to bring small Chinese companies public in the US.
One of her partners in that fund, David Huakang Zhou, and his New Jersey-based company Warner Technology and Investment Corp agreed to pay more than $1.4m in October this year to settle fraud allegations pursued by the SEC in connection with helping Chinese companies to list in the US, marketing their shares to unsophisticated Chinese investors living in the US and improperly using the proceeds.
Mr Zhou did not admit or deny the allegations.
Ms Shiu was not involved in the SEC complaint.
Ms Shiu and Peel Group both declined interview requests and did not respond to a list of emailed questions.

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Britain goes soft on rights to woo China

Britain has downgraded human rights as an issue when dealing with China, a move which has made it harder for other countries to talk tough on the subject.
By Kiran Stacey in London and Jamil Anderlini and Lucy Hornby in Beijing

Stella Shiu, right, at the site of the proposed £175m Wirral project with Lindsey Ashworth, development director

Britain has been accused of softening its stance on human rights in China to attract foreign investment, despite doubts over the credibility of some of the groups who have offered to fund big projects.
As David Cameron, prime minister, prepares for a long-awaited visit to Beijing, a Financial Times investigation has raised questions about a project with Chinese backing in northwest England.
The FT has identified several anomalies with Sam Wa, a Chinese company that has proposed an investment in the £175m development on the Wirral.
The investment has been championed by UK Trade and Industry.
Stella Shiu, Sam Wa’s chairman, was declared bankrupt by a Hong Kong court in 2008, after which she changed her name, it has emerged.
Several companies registered on the Chinese mainland under her previous name have since been dissolved.
Richard Ottaway, chairman of the foreign affairs select committee, told the FT: “UKTI has got to justify its actions, it has got to explain why it recommended investment from this group.”
The deal between Peel Holdings, the company leading the Wirral redevelopment, and Ms Shiu’s company was originally signed in the presence of senior UKTI officials, including Lord Green, trade minister.
It was touted as an example of the kind of deal that is being promoted by Mr Cameron as he focuses Britain’s relationship with China firmly on securing trade between the two countries.
The prime minister will travel to China next week for the first time since the new Chinese leadership took over, ending a year-long diplomatic stand-off over his decision to meet the Dalai Lama in 2012.
He will take a large trade delegation with him, including dozens of executives from blue-chip companies and others from small and medium-sized businesses.
But the trip comes amid mounting concern that Britain is so keen to sign new deals that it is failing to carry out enough due diligence on prospective investors.
One of the biggest projects to have attracted Chinese backing is a £1bn property development in London’s docklands.
But Advanced Business Park, a Chinese company planning an office complex on the site, has only one completed project to its name: a development located on the far outskirts of Beijing in the city’s least affluent district.
John Spellar, a Labour member of the all party group on China, told the FT: “UKTI and the Foreign Office have to be careful and undertake due diligence to make sure of the bona fides and assets of any potential investors.”
Senior diplomats in China believe Britain may be going too far in trying to encourage inward investment into the country.
“Total capitulation” was the way one senior Beijing-based Asian diplomat described Britain’s climbdown over the Dalai Lama debacle.
“The whole situation has been poorly handled – 18 months ago Mr Cameron was the great defender of human rights speaking truth to China and saying the UK will act on principle, but now it seems to be about business and nothing else,” said Kerry Brown, an associate fellow at Chatham House and a former British diplomat.
“There’s a strong case to engage with serious Chinese companies and to welcome their investment, but some of the companies people like Boris Johnson are talking to have no record abroad at all. It all seems extremely unsophisticated.”
One senior European diplomat said it was clear from internal European meetings that Britain had downgraded human rights as an issue when dealing with China, a move which has made it harder for other countries to talk tough on the subject.
Most of the dozen or so senior diplomats who spoke to the FT on the matter said Britain’s willingness to downgrade human rights was unlikely to help it deal with Beijing, which would only sense weakness in its about-face.
Another European diplomat said that by agreeing to allow more Chinese investment in its telecoms, nuclear and banking sectors as a way of getting back in Beijing’s good graces, the UK had given far more than any other European country would consider.
“It certainly appears that they have sold the store and what are they actually getting in return?” asked one senior diplomat in Asia.

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Buyer Beware: A Bleak View Of China From A Tiger Woman On Wall Street

By Heng Shao

Junheng Li, author of Tiger Woman on Wall Street: Winning Business Strategies From Shanghai to New York and Back.

The glorious veneer of China’s growth machine can easily entice an outsider, but the view is not so pretty for someone who has seen how the gears operate on the inside. 

Despite the strength of its hardware, China suffers from malfunctioning software that discourages innovation, collaboration and honesty. 

The profound implications for China’s investing environment can be summarized into two words: “buyer beware,” writes Junheng Li in her autobiography, Tiger Woman on Wall Street: Winning Business Strategies From Shanghai to New York and Back.
A Shanghai native, Li spent her first 20 years in China with her working-class family. 

After attending Middlebury College in Vermont and working in the finance industry in New York, Li started her own equity research firm, advising on investments in China. 

She holds an extremely bleak view of China’s economy, which she compares to an athlete on steroids who inevitably faces “a long period of underperformance.” 

There is little chance of success in holding long-term investing positions in China, she has found. 

But as a mindful investor who is well-versed in Chinese culture and conducts relentless due diligence, Li sees a way to make money amid all the gloom: short-selling. 

This book, to be released on Nov. 8 by McGraw Hill, is a treasury of her knowledge on how to exploit rampant market inefficiencies to make a profit in China.
All of the problems she outlines here have long been highlighted by China experts, but Li adds a personal touch with telling tales of their impact on herself, her family and her business dealings. 

She sees few bright spots to what the 35-year-takeoff has created, despite obvious improvement in her own family’s standard of living. 

For the bottom 99% in China, she argues, the perceived major difference is that they now have “far wealthier people around to compare themselves to.” 

The glitzy Park Hyatt on the Bund is just a cover for rows of old-fashioned apartments where the majority of her old neighbors still live. 

Rising sales of Gucci or Swiss watches have little to do with a growing middle-class, but instead come from the fattened pockets of corrupt officials. 

Shadow banking is rampant as the state banks neglect small and medium-sized enterprises in the private sector. 

She goes on and on.
But unlike many China bears who look at the country from a distance, Li—who is a Forbes.com contributor—is a well-informed insider who has lived through and even embodied China’s problems. 

Her pessimism would easily be shared by anyone growing up in an unprivileged Chinese family, clawing their way up and gaining exposure to a place such as America, where the education system and business environment are much more mature. 

As someone 15 years younger than Li, I found my educational experience to be nearly identical as hers. 

This unfortunate resonance shows what little progress the country has made on that front—what Li calls “China’s Achilles’ heel.”
To understand her bleak view, start with Li’s upbringing by a tiger parent in China in the 1980s, when the country was finally beginning to recover from the “lost decade” of the Cultural Revolution that left a generation scarred and impoverished. 

A first-class college education was seen by most families as the only key to a bright future. 

The result was a fiercely competitive education system where nothing but high scores and a conformist ideology mattered – not original thinking, not doubts, not virtues. 

Cheating was rampant, as Li recalls. 

“I never felt guilty about it. If bad students hoped to climb up the class rankings by cheating, good students like me wanted to make sure we stayed on top.” 

No surprise that later, at Middlebury, she found unproctored exams a bizarre idea.
Similarly, circumventing rules became a pre-condition to success in business. 

As if releasing a flood, once Deng Xiaoping unblocked the path to wealth creation, there was simply “no stopping the Chinese people from surging ahead.” 

With everyone “under the influence of short-term greed,” money-making began with cutting corners. 

Most commonly, people scalped whatever they could lay their hands on, skipped work at state-owned enterprises, and stole company assets. 

The garment factory that Li’s mom operated was a case in point. 

Instead of purchasing new materials, the factory’s managers lied and squandered RMB 10,000 at karaoke bars. 

When the factory had to be closed down, they stole all the valuables, even the sewing machines. 

The lesson that Li’s family learned was “seeing and believing.” 

Every penny they earned, Li writes, “was a result of hard work and extra caution.”
These childhood memories left an indelible mark on Li’s perception of China, even after she found her way to an American education and received investment training at Aurarian Capital, a $100 million hedge fund. The results-driven mentality that lifted many Chinese out of poverty has a downside, it turns out. 

As Li observes:“Chinese people at all levels of society had grown used to this rapid pace of transformation and come to see it as a goal in itself. Everyone from corporate managers to local government officials was racing to build empires.”
But the software that has been thrown aside in this race — innovation, honesty, a long-term horizon — is desperately needed for moving up the value chain and enhancing the country’s global competitiveness. 

“Investors outside China often fail to appreciate this dangerous imbalance between the country’s hardware and software,” Li writes. 

“Everything I saw in China convinced me that both Wall Street and the rest of the world had gotten the China growth story wrong.”
To support that bold claim Li presents incisive analysis of some 20 American and Chinese companies in her book. 

She shows how she made money by short-selling in two well-known fraud cases, China Little Fertilizer and Longtop. 

With juicy details from her original research, she also hammers such name brands as KFC, Baidu and Sina, and hot sectors such as renewable energy and banking. 

For one example of her unconventional findings, Li discloses that 80% of Sina Weibo’s 500 million registered accounts are primarily used for “spamming or third party marketing.”
Li is not a fan of investing gurus such as Warren Buffett and Singapore-based Jim Rogers. 

She believes that their top-down approach in China — emphasizing macroeconomic and industry analysis rather than focusing on individual companies — is prone to error in an economy with unreliable macro data. 

Buffett’s investment in BYD, “a Chinese company whose valuation was largely driven by electric vehicles, a product yet to be commercially proven” in China, was a surprise to Li. 

She believes that with the exception of Buffett himself, “whoever bought into the Buffett bubble was likely sitting on a loss.” 

The company’s stock price is up 400% from his purchase price in September 2008, but is down 50% from the peak price in 2010. 

Its revenue has also shrunk in the past two years.
Referring to Rogers’ late 2007 book — A Bull in China: Investing Profitably in the World’s Greatest Market — as “200 pages of empty-calorie analysis,” Li succinctly summarizes his strategy: “buy every stock in every industry in China.” 

That all-out approach to China still holds today, even though the Shanghai and Shenzhen Stock Exchange Composite indices have slumped 50% and 15%, respectively, since the publication of his book.
Li laments that many institutional investors fall into the camp of Rogers and Buffett. 

The common attitude is succinctly captured by Brian, a portfolio manager at a $5 billion hedge fund: “Everyone and his mother are looking at and buying China. Don’t miss the boat.” 

But rather than digging up the truth on the ground, these investors sit behind Bloomberg terminals “daydreaming of hitting the gold mine,” Li says. 

Their “greed, ignorance and laziness” feed into and inflate hot investment themes. 

That isn’t necessarily a bad thing from her point of view. 

It creates a slew of shorting opportunities.
For investors who are feeling tipsy at “The Red Party,” Tiger Woman on Wall Street is a much-needed sobering up. 

For those new to the country, this book is China 101, covering not only the business but also the social and political landscape. 

Li’s simple, explanatory language makes the book an easy read even for those without an investing background.
The autobiography is coming out right before the CCP’s Third Plenary Session, where decisions on major economic and financial reform are anticipated. 

Li’s view resonates with many politics and economics experts, Chinese or Western, who argue that the country cannot make an economic breakthrough without upgrading its software—education, shared ethical beliefs, rule of law, political accountability, etc. 

As the Chinese idiom goes, the illness must be pulled out from its root.

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The High Price of Digging Up Dirt in China

Two analysts for a hedge fund were arrested in China for their research into a mining outfit with a powerful local presence. Their scary tale casts doubt on just who's guilty. 
By BILL ALPERT and LESLIE P. NORTON

Haizhang "Michael" Wei, a colleague of Kun Huang, escaped to London.







Researcher Kun Huang is in a Chinese jail awaiting a trial verdict. 

Canadian stock analyst Kun Huang has been locked in a Luoyang, China, jail for more than a year, charged with defaming a Canadian company whose shares trade on the New York and Toronto exchanges.
In 2011, a report circulated by Huang's hedge-fund employer alleged that ore samples from a mine run by Silvercorp Metals

tested low for silver content.
Unluckily for Huang, Silvercorp's mine is a prominent enterprise in Luoyang, the city in the central province of Henan where prosecutors have charged that he not only defamed the company but used an illegal camera to shoot video of its operations.
After a one-day trial on Sept. 10, the analyst, 36, now waits to hear whether a judge will find him guilty and sentence him to three more years in prison.
A Canadian consul described the Luoyang jail as "atrocious." Few trials in China end in acquittal.
The researcher is one of hundreds that Chinese media say have been rounded up since May 2012 for helping foreign investors check out U.S.-listed Chinese companies, or for conducting the due diligence required of multinational corporations by their home countries' antibribery laws.
Most of those arrested are Chinese nationals, but public attention tends to focus on the foreigners.
Chinese television recently broadcast the handcuffed image of well-known fraud investigator Peter Humphrey, a Brit accused with his American wife of accessing state records in the course of background checks performed by their Shanghai-based firm, ChinaWhys, on dozens of Chinese businesses -- including Silvercorp (ticker: SVM).
The researchers' arrests may be a response to the plunging popularity of Chinese shares that trade on U.S. exchanges.
Investigators like Huang and Humphrey helped expose unflattering evidence on companies listed here via the back-door maneuver known as a "reverse takeover" -- inspiring a wave of short-selling, delistings, and fraud charges by U.S. regulators.
China stocks generally haven't done well in the past couple of years, and the flow of Chinese initial public offerings in the U.S. has virtually stopped -- just one company came public here in 2013.
Chinese executives were understandably dismayed when American investors turned a cold shoulder, yet Beijing also seems to have taken umbrage. 
An editorial last year by the state-run news agency Xinhua growled that critiques of Chinese firms by U.S. short sellers were malicious acts seeking to "poison reputations of Chinese start-ups for profit" and fueling foreign prejudices against Chinese business.
With the imminent verdict on Huang, the Silvercorp saga has gone the furthest of China's research crackdowns.
It is also the best documented, due to a small mountain of written and audio-visual records surreptitiously collected by Huang and his colleagues over the course of their pursuit by Luoyang cops.
Huang's hedge-fund boss Jon Carnes shared these recordings with Barron's, as well as with regulators and law-enforcement officials in Vancouver, where Carnes' investment firm and Silvercorp are based.
Carnes says Canadian authorities have opened a bribery probe based on his allegations that Silvercorp directed and paid for Luoyang's prosecution of Silvercorp's critics.
Among the documents Carnes shared are some that he says show police expenses paid by the Silvercorp mine, one of the biggest employers and taxpayers in the city.
The company and the local police have denied any corrupt relationship.
At the least, China's clampdown on business research means that investors will have to place their China bets with less information.
The type of research Huang was conducting is akin to that used in the West, part of the "tire-kicking" that responsible stockpickers do before buying or selling short a stock.
"I cannot change the way we do investment research in China," says Carnes.
"We have to perform on-the-ground research if we want to find out the truth. Our research activities have broken no laws in China or abroad."
"I deeply believe [that] Huang is innocent," said his colleague Haizhang "Michael" Wei in an affidavit he sent to the Luoyang court, after escaping from China to London.
Wei took photos and videos that he says show Silvercorp payment receipts piled on the desk of his police interrogator.
Silvercorp's "payoffs" made Luoyang police into the company's "tool," said Wei in the August affidavit. Although Silvercorp wouldn't talk to Barron's, it has said the receipts must have been forged by the hedge-fund group.
Chinese prosecutors told Huang that they weren't persuaded by his allegations of corruption.
Wei struck an optimistic tone in his affidavit: "Paper can't cover up fire, and the truth eventually will surface."
Before escaping, Wei avoided incarceration by feigning cooperation with Luoyang policemen like Yi Feng, the lead investigator on the case.
In one of several conversations with the policeman that Wei recorded, Yi Feng said that the unrepentant Huang would be punished for defaming the police and Silvercorp -- even if the police had to make up charges.
"If you're under the foreign economic system or within the context of financial markets," the policeman told Wei in the recording, "freedom of speech is probably OK. But within China, this is inappropriate.
They actually broke some laws of our country."
"Huang's good days are numbered," he said.
Barron's verified the contents of the recording with two Mandarin speakers.
Yi Feng told Barron's last week that neither he nor his police colleagues were authorized to speak to foreign reporters.
He suggested that the U.S. Consulate could submit our questions to China's Ministry of Foreign Affairs—a ministry that Barron's had already queried, to no avail.
Silvercorp spokesman Lorne Waldman also declined to answer our questions about China's prosecution of his Canadian company's critics, saying the matter was "the subject of ongoing litigation."
Whatever the verdict in Luoyang, Huang and his colleagues seem justified in their skepticism of Silvercorp's mining.
Over the past few years, Silvercorp has steadily revised downward the grade quality it claims for its silver resources, to a level that's now just a third of its initial claims.
Earlier this month, Silvercorp seemingly validated the hedge fund's findings, when Silvercorp told shareholders that its ore grade had fallen because its contractors had adulterated the Henan mine's output by adding "waste rock" to the ore to increase their transport payments and mining fees.
Since the fiscal year that ended in March 2011, Silvercorp's annual earnings have fallen from 40 cents a share to 16 cents a share.
Its New York Stock Exchange-listed shares have slid from their 2011 high of $16 to a recent $3.27.

ANALYST HUANG ARRIVED at the Vancouver hedge-fund firm EOS Holdings in 2006, after finishing accounting and finance degrees at the University of British Columbia.
EOS director Carnes had been an early investor in the small companies of China, where he gained a reputation for diligent research.
When his on-the-ground research convinced him that a U.S.-listed China stock was much less than it seemed, Carnes didn't mind selling it short.
Carnes started publishing his short ideas directly on the Internet, but ran his reports under the pseudonym Alfredlittle.com, fearing that EOS researchers in China would suffer retaliation.
In September 2011, an Alfredlittle.com report raised concerns about Silvercorp's business, and described lab tests of samples that the report said had fallen off mining trucks in Luoyang.
As Silvercorp's stock dropped by 20%, its chief executive Rui Feng fought back against what he called a "false and fraudulent" short attack.
The company put lengthy rebuttals on its Website and said some parts of its financials had been checked by forensic accountants at KPMG.
Silvercorp also filed a "John Doe" defamation suit in New York against its anonymous detractors and called upon the Royal Canadian Mounted Police to search for the alleged fraudsters.
Faster answers came from the Economic Crimes Investigation Unit of Luoyang's Public Security Bureau. Wei says he was told later that the cops found a surveillance photo of a local researcher bringing ore samples to the lab for testing, then discovered that he'd stayed at a hotel near the mine.
He gave up the names of Huang and Wei, who were working for the hedge fund in the cities of Chengdu and Xi'an, respectively.
Luoyang police arrested Wei on Dec. 20, 2011, releasing him only after he promised to cooperate and paid them the equivalent of about $16,000, which a police receipt called a "return of illicitly obtained funds."
A week later, police arrested Huang at the Beijing airport.
They strip-searched him, confiscated his Canadian passport and laptop computers, then drove him to Luoyang, where Huang has said he was released after paying about $32,000.
Carnes has copies of the booking records, whose witness signatures include the name of a Silvercorp executive.
Over the following months, Wei says Luoyang police tried to get the analysts to sign prewritten confessions that said the analysts had fraudulently run their chemical analyses on roadside rocks instead of Silvercorp ore.
The Canadian Huang refused to sign what he said were false statements.
But Wei, 33, was a Chinese citizen who couldn't hope that a foreign government would come to his aid.
Wei led police to believe he would testify against his colleagues, and he signed confessions that -- now that he has escaped to London -- he says were false and coerced.
"If I didn't say what they want," Wei tells Barron's, "I will be put in jail."
The unyielding Huang was jailed on July 22, 2012, a few days after a New York Times article aired the suspicions of EOS boss Carnes -- denied by Silvercorp -- that China's police were doing Silvercorp's bidding.
In the New York court hosting Silvercorp's defamation case, Carnes argued in an affidavit that a list of EOS phone numbers and addresses mentioned in a Silvercorp discovery request could only have come from the contact list on a laptop that Chinese police had seized from Huang.
The lists from Silvercorp and the laptop had the same typos, said Carnes in his affidavit, and one phone number was actually a Carnes family frequent-flier account number.
After denying that the information had come from China's cops, Silvercorp withdrew its discovery request. When Judge Carol Edmead dismissed the suit in August 2012, she said that Silvercorp hadn't identified any false statements in the Alfredlittle.com reports, which she ruled were also protected expressions of opinion. Silvercorp didn't appeal her ruling.
In September 2012, the Canadian newspaper Globe and Mail reported Carnes' claims that Silvercorp was funding the Luoyang investigation.
Before his incarceration, Huang had given the newspaper copies of what he said were hotel receipts that police officer Yi Feng billed to a Silvercorp mining subsidiary, as Yi Feng had Huang accompany him on several investigative trips.
The Globe and Mail said that its checks with hotels and local tax bureaus supported the authenticity of the receipts.
Silvercorp told the paper that Carnes must have forged the documents.

Haizhang "Michael" Wei photographed receipts, above, that he says prove a Canadian company funded a police probe of the two.

But Carnes has other evidence he says supports his claim that Luoyang police took Silvercorp's money.
On May 8, 2012, still free while under investigation, Wei visited Luoyang's police headquarters in an attempt to recover his passport, on the pretext that he needed it to register for the Chartered Financial Analyst exam. He came away empty-handed, but he did make a recording of his police visit.
When police officers left him unattended for a few minutes, Wei crept around their desk, which the shaky video recording shows piled with papers.
It shows him snapping away with his iPhone at what he says are travel receipts that coincide with the policemen's trips to interrogate the hedge-fund researchers.
The payer shown on the documents is Silvercorp's 78%-owned Chinese subsidiary, Henan Found Mining.
In other parts of Wei's covert recording, Yi Feng warns Wei that he'd better give trial testimony or he'd fare even worse than his "stupid" colleague Huang.
The policeman can be identified on Wei's video, because Carnes has a photocopy of what he says is the policeman's official ID card.
The recorded cop acknowledges that some of the companies shorted by the hedge fund had probably been flawed.
"But now you messed with Silvercorp, and the issue is elevated," he said.
"Now they have some central government leaders' support. So you just have to be punished."
"What happens if we can't find anything in the criminal code? Then we make a new interpretation," Yi Feng continued.
"I'll even fabricate a charge on you."
Wei was under house arrest and continuing to feign cooperation in April of this year, when he walked into another town's police station and pretended that his passport had been lost.
Unaware of events in Luoyang, these police arranged a rush delivery of a passport, which enabled Wei to fly to Cambodia.
With Carnes' help, Wei made it to London where he's waiting to see if Canada will let him go to work for Carnes in Vancouver.
He says he even phoned Yi Feng, who pleaded and threatened that if Wei didn't return to testify against Huang, he'd never be allowed back.

HUANG'S STORY IS MORE GRIM.
In July 2012, police locked him in a 300-square-foot cell with 24 other prisoners.
He has lost 40 pounds.
According to people familiar with the Luoyang jail, prisoners are forced to work unpaid in a shop, assembling things like Christmas lights whose 110-volt format suggests a North American customer.
Don Davies, the member of parliament who represents the Vancouver region where Huang's father lives, suggests the Canadian government may be dragging its feet.
The administration of Prime Minister Stephen Harper, he notes, has fervidly pursued China's investment and trade.
When contacted by Barron's, a spokesperson for Canada's Foreign Affairs Ministry, said, "We are in contact with local authorities and are monitoring the situation closely."

Carnes says his fund is short about 130,000 shares of Silvercorp.
After making $2.5 million from shorting Silvercorp shares, he has spent most of it defending Huang, Wei, and himself.
On Sept. 10, Huang was tried on charges of criminally defaming Silvercorp and using an illegal spy camera to video the company's mine.
Wei didn't return to testify against him.
Only Huang's two lawyers and a lawyer from Silvercorp were allowed to attend the proceedings.
According to notes that the defense lawyers passed along to Carnes, police officer Yi Feng said that the desk and travel receipts shown in Wei's video were not Yi Feng's.
When defense lawyers asked Yi Feng about his recorded comments, they say he had no answer.
Carnes argues that jailing investment researchers is the wrong way to try lifting China's stock valuations. "Corruption just makes investors lose trust," he said, "which is the most important factor influencing investment decisions in foreign equities."

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