As the controversy on ONP evolves, I think many people hope to find out the truth. I read Muddy Water’s report, ONP’s response, Muddy Water’s response, Rick Pearson’s and Eric Jackson’s articles, but I decided to do some due diligence of my own. And I have found a lot of data is readily available on Chinese websites, such as a company’ name, owner, location, date of registration and registration assets. This kind of information is like finger prints, which are born with the company and stay with it. The company can’t change them afterwards. In this particular case, it is unlikely there are two companies that have the exactly same finger prints. In addition, there is information such as pictures of the company, number of employees, land size, production lines, equipments etc. posted by the company in various activities such as HR ads. There are also websites from industrial association and competitors that can be used as reference.
Due to ONP’s claim that Muddy Water’s investigation was meant to be a Chinese company in the same location other than ONP’s HBOP, the credibility issue has become simplified. Since Muddy Water responded that its HBOP is just the ONP’s HBOP, the same company, it is consistent with its other claims on ONP investigation. So let’s suppose there are two HBOPs, as ONP claims, and then examine if there will be controversy by checking data.
ONP’s claim actually implies the following. First, there exist two different companies at the same location, town, city or province . Second, one is much larger than the other in terms of production capacity. Third, Muddy Water’s HBOP is the smaller one and ONP’s HBOP is the larger one, and ONP has nothing to do with Muddy Water’s HBOP.
If data confirms to the above three points, then ONP’s claim holds. However, my search shows the opposite: the data on Chinese websites show that first, Muddy Water’s HBOP is subsidiary of ONP and its “owner ” (or company legal representative) is ONP’s CEO Zhenyong Liu, and second, there is only one HBOP. Now the burden of showing proof of credibility is on ONP.
“How have you found out”, people might ask? The trick is in the names of two companies.
In ONP’s press release, it states that Muddy Water’s HBOP is called “He Bei Oriental Paper Co. Ltd” and ONP’s HBOP “Hebei Baoding Orient Paper Milling Co., Ltd”, and that the latter is larger and has nothing to do with the former. And it is true Muddy Water called its HBOP “He Bei Oriental Paper Co. Ltd.” Two names should mean two companies: it seems clear. Indeed, in Its response on its website, Muddy Water started to call its HBOP the “entity”, probably realizing the English name of the company is a problem. Muddy water then gives out in its response on its website the Chinese name of its HBOP, or the “entity”, in the hope that ONP might reveal its HBOP’s Chinese name. If ONP did so, everything would be crystal clear. And it would have saved me some time to do research. But ONP so far has not revealed the Chinese name for its subsidiary or HBOP. Why?
People might wonder: “what’s the big deal about HBOP’s Chinese name? Shouldn’t two entities with different English names also have two different Chinese names?” People thinking so should ask themselves what the official language is in China.
Well, in China, a company is officially registered in Chinese language. Its English name is not only non-official, it is not even unique. Its English name depends on translator/interpreter and the time. It is not unusual for an institution to have different English names at different time periods. For example, the well-known Peking University, one of the best in China, was also called Beijing University in 1980s. The capital of China used to be addressed as Peking, but now Beijing. University officials find using old names attract more attention or donation, but the government would like to enforce a unified naming system (i.e., Pin Yin system) in order to reduce confusion and make Chinese easy to learn, which has a unique spelling in Roman/English letters for each Chinese character. Although an institution’s English name might not be unique, a person’s official English name is unique, in Pin Yin, as shown in one’s passport. This indicates in our case that the ONP’s Chinese subsidiary might have different English names but its owner has unique English name. Nonetheless, this is not proof that ONP’s Chinese subsidiary must have two English names. It just shows that two English names don’t have to mean different Chinese names, or two companies. It just indicates that the search should be done in Chinese language domain, not English. (I wonder how Google would feel about its decision to get out of China if this case became a big deal in press).
I did my search in the following ways.
First, from Muddy Water’s HBOP to ONP. Since Muddy Water has provided the Chinese names of its HBOP or “entity” and the owner on its website, I used the company’s Chinese name as keywords for search, with both Google and Baidu. I would like to see if the HBOP claims to be wholly owned by ONP.
Second, from ONP to the Muddy Water’s HBOP. Using ONP’s English website and its Chinese name as keywords search for Muddy Water’s HBOP. I would like to see if ONP claims the HBOP is its subsidiary.
The keywords in Chinese language are as follows.
HBOP’s Chinese name is “河北省保定市东方造纸有限公司” and its “owner” has Chinese name “刘振勇”, whose English or Pin Yin is Zhenyong Liu, the same name as ONP’s CEO.
ONP’s Chinese name is “河北东方纸业有限公司” or “东方纸业.”
There is a thirty entity called Bao Ding Sheng De (Chinese name “保定盛德纸业公司”). ONP control its Chinese subsidiary (i.e. HBOP) through Bao Ding Sheng De.
In summary, here is what I have found on Chinese websites (see the following for websites).
1. Muddy Water’s HBOP (with its Chinese name) on websites claims one or more of the following ( but each appears at least once on one of the websites).
a) Owner (法人代表): Zhenyong Liu (刘振勇), same as ONP’s CEO.
b) Registration date: 1996.
c) Registration asset: RMB 75,030,000, same as Muddy Water claims.
d) Location: Xushui Town, Boading City, the same Muddy Water and ONP claims.
e) Employees: 600, same as Muddy Water and ONP claims.
f) Land size: 258.06 acre.
g) Other data: pictures showing ONP’s Chinese name: “东方纸业 ”in the center of a picture of (management?) meeting. Its some other pictures also appear on ONP’s own English website.
h) Mother company: claims it is wholly owned by ONP(东方纸业), a US public company, with ticker symbol ONP on AMEX, some of them with ONP daily stock chart.
2. “东方纸业” (ONP under its Chinese name) on websites claims one or more of the following ( but each appears at least once on one of the websites).
a) Company: ONP on AMEX.
b) Chinese subsidiary: (owned through Bao Ding Sheng De) Muddy Water’s HBOP(河北省保定市东方造纸有限公司).
c) Chinese subsidiary Registration date: 1996.
d) Chinese subsidiary Registration asset: RMB 75,030,000, same as Muddy Water claims.
e) Chinese subsidiary Location: Xushui Town, Boading City, the same as ONP’s.
f) Chinese subsidiary Employees: 600, same as Muddy Water claims.
g) Chinese subsidiary Land size: 258.06 acre.
Unless the information on Chinese websites are all false (which is unlikely because the company registration information is in government files that can be easily accessed), the only conclusion one can draw is that the Muddy Water’s HBOP is ONP’s HBOP, its Chinese subsidiary. Websites listed below is just a small part of relevant Chinese websites and one can find more.
If ONP doesn’t agree with this conclusion, it can simply reveal the Chinese name and registration data of its Chinese subsidiary, showing it is really different from Muddy Water’s HBOP. Even if it would do so, it would be hard to explain where all the information on Chinese websites came from if not originally posted by ONP’s HBOP for various business purposes. Remember the various Chinese websites information related to the HBOP was not there in a matter of days, but years, and the activity range is so wide.
It is unlikely that the HBOP would have a business twin with the same date of company birth, at the same location, with the same parents and amount of asset.
There is one more issue now. It can be assumed that ONP knows its competitors next to its door, no matter large or small. If the above conclusion holds, then where is the other local Chinese paper mill that ONP claims to exist? Does it exist? If not, ONP can’t take it back or just say it was a casual mistake now, due to its last week’s press release. It is also noticeable that Rick Pearson and Eric Jackson didn’t mention this important issue in their articles.
I guess what investors are wondering now, no matter long or short, is how to get their money back. When it comes to interests, people use power instead of reasoning and believe wining is more important than being true or right. But the truth will eventually be seen. It is just a matter of time. Looking forward, in a controversy of such as degree, it is doubtful there would be any real long term investors now. The so-called long term will probably last no more than up to the point where when they can sell to the rally and get part or all of their money back. Lawsuit is a tool and will be used one way or the other, though how much cash ONP can still have is a question, all its assets included.
Disclosure: long short
Disclosure: Used to be long and then turned into short