It's not inflation but deflation! Shandong Zhanggu's reverse financial fraud is likely to be penalized; next week, the "hat" will turn into ST Zhanggu.

Every Daily Economic News Reporter: Peng Fei Every Daily Economic News Editor: Bi Luming

Shandong Zhanggu (SZ002598, stock price 8.76 yuan, market value 2.734 billion yuan), which had previously drawn regulators’ attention due to compliance issues, has now received a heavy regulatory crackdown. Unlike the common practice in capital markets of inflating profits, Shandong Zhanggu this time was involved in a rare “reverse fraud”—falsely reducing profits and thus crossing the compliance red line.

According to the “Notice of Administrative Penalty Prior Notification” issued by the Shandong Securities Regulatory Bureau, in 2024 the company falsely recognized expenses of 8.4627 million yuan without the relevant business having actually occurred, which resulted in the total profit disclosed for the period being falsely reduced by 10.37%.

As a result, four relevant responsible persons, including Shandong Zhanggu’s then Chairman and General Manager, were proposed to be fined a total of 6.9 million yuan. The capital market’s immediate reaction followed: the company’s stock and convertible bonds will be suspended for one day on April 7. After trading resumes on April 8, Shandong Zhanggu will be officially subjected to other risk warning measures, the stock short name will be changed to “ST Zhanggu,” and the daily trading price fluctuation limit will be reduced to 5%.

A reporter from the Daily Economic News noted that, when facing a compliance crisis, this long-established fan manufacturer’s path to “lift the warning” will at least require waiting for one year.

Rare reverse fraud: profits falsely reduced by more than 10%, four parties jointly penalized

On April 3, 2026, Shandong Zhanggu and related parties received the “Notice of Administrative Penalty Prior Notification” issued by the Shandong Securities Regulatory Bureau. After investigation by the regulatory authority found that in 2024, without the business of accepting maintenance, technical services, and other related matters having actually occurred, Shandong Zhanggu recognized relevant selling expenses and administrative expenses totaling 8.4627 million yuan.

This directly led to false records in Shandong Zhanggu’s 2024 annual report, with the total profit falsely reduced by 8.4627 million yuan, accounting for 10.37% of the total profit disclosed for that period. In light of the above illegal facts, the Shandong Securities Regulatory Bureau proposed to impose strict penalties on the company and the four responsible individuals, with the total fine amount reaching 6.9 million yuan.

Among them, Shandong Zhanggu was ordered to make corrections, given a warning, and fined 2.5 million yuan. Fang Shupeng, the then co-chairman and general manager, was warned and fined 1.8 million yuan for making decisions to implement the aforementioned expense treatment. Shen Chunfeng, head of the Turbine Business Department and the Electrical Business Department at the time, was fined 1 million yuan for organizing the implementation of the matter.

In addition, then Chairman Fang Runjiang and then Chief Financial Officer Zhao Xiaofen were each fined 800,000 yuan for failing to perform their duties diligently and for being unable to ensure that the annual report was true, accurate, and complete.

A reporter from the Daily Economic News noted that this is not the first time Shandong Zhanggu has come into contact with the compliance red line. On December 18, 2025, the Shandong Securities Regulatory Bureau had issued a “Decision on Taking Correction Measures against Shandong Zhangqiu Jinqifeng Fan Co., Ltd. and Relevant Responsible Persons” due to the company’s “three major violations,” including irregularities in related-party transaction review and information disclosure, violations in the use of raised funds, and non-standard corporate governance, thereby adopting correction measures.

On December 31 of the same year, the China Securities Regulatory Commission formally filed a case against the company for suspected violations of laws and regulations related to the disclosure of financial information in periodic reports. These successive compliance loopholes exposed the company’s longstanding chronic issues in internal governance.

From April 8: becomes ST Zhanggu

The cost of financial fraud quickly spread to the capital market. According to the “Stock Listing Rules of the Shenzhen Stock Exchange,” because the company’s disclosed annual report financial indicators included false records, the Shenzhen Stock Exchange will impose other risk warning measures on Shandong Zhanggu’s stock.

Shandong Zhanggu’s stock and its convertible corporate bonds (Zhanggu Convertible Bonds) will be suspended for 1 day starting from the opening of trading on April 7, 2026, and conversion will be paused. Starting from the opening of trading on April 8, the stock short name will officially be changed to “ST Zhanggu,” the daily trading price fluctuation limit for the stock will be reduced from 10% to 5%, and the convertible bonds will resume conversion on the same day.

A reporter from the Daily Economic News noted that although Shandong Zhanggu currently believes it has not reached the circumstances requiring mandatory delisting due to major violations, and the company’s board stated that it will urge management to actively take measures to strive for the early removal of other risk warning measures, the time to “lift the warning” will still be at least one year.

According to relevant rules of the Shenzhen Stock Exchange, an application to remove other risk warning measures must satisfy two strict conditions at the same time: first, the company has retrospectively restated the corresponding annual financial and accounting reports regarding the matters involved in the administrative penalty decision; second, 12 months have passed since the issuance date of the administrative penalty decision by the China Securities Regulatory Commission.

While being “under the warning,” the company’s operating performance is also far from encouraging, leaving the market worried about its prospects.

On the evening of January 5, Shandong Zhanggu’s voluntary disclosure announcement of its 2025 performance forecast showed that the company expects to achieve net profit attributable to shareholders of 72 million yuan—80 million yuan in 2025, representing growth of 0.65%—11.83% compared with the same period last year.

But looking back, Shandong Zhanggu’s net profit attributable to shareholders in the company’s first year after listing (2011) reached 95.9343 million yuan, after which the company’s performance saw ups and downs. Faced with continuously rising operating costs, the gross profit margin of the company’s main business declined. In the first half of 2025, the gross profit margins of its fan, slurry pump, and water treatment businesses fell by 3.1 percentage points, 2.88 percentage points, and 1.63 percentage points, respectively.

To break through the growth ceiling, in recent years Shandong Zhanggu has tried to find a way out through cross-industry investments. Over the past few years, the company has invested approximately 300 million yuan, laying out areas including water treatment, the low-altitude economy, new materials, robots, and sensors, and has controlled or held equity in more than 30 companies, but the results have not been significant.

To turn around the downturn, in August 2025, Jinan Zhangqiu District State-owned Assets Operation Co., Ltd., the state-owned controlling shareholder, changed its usual approach by adding non-independent director seats in the board, intending to push the company’s performance to achieve a breakthrough.

Now, with the massive fine having been handed down and the stock being subjected to other risk warning measures, Shandong Zhanggu is facing the dual extreme challenge of repairing compliance loopholes and winning the “performance defense battle.”

Daily Economic News