Behind Jinjian Rice Industry's Hollow Trading and Inflated Revenue: A Year of Fabricated Growth Saw State-Owned Enterprise Executives' Compensation Surge 60%

Produced by: Sina Finance Listed Company Research Institute

Text / Xia Chong Studio

Core Point: Jinjian Rice Industry mainly fabricates revenue through “empty turnover trade” with no actual logistics flow. Notably, executive compensation is directly linked to scale indicators like revenue. Under pressure from sluggish core business growth and thin profits, is management motivated to commit financial fraud to “inflate scale” to meet targets and earn incentives? Additionally, the company has inflated figures for certain years, causing some executives’ salaries to surge.

Recently, Jinjian Rice Industry issued an accounting error announcement due to inflated revenue.

Jinjian Rice Industry was penalized by regulators for inflating revenue. According to the announcement, some trade businesses conducted by its subsidiary Jinjian Agricultural Products (Yingkou) Co., Ltd. involved no actual logistics flow and lacked commercial substance. Certain revenue recognition did not comply with accounting standards, resulting in the company artificially inflating operating income by 228 million yuan, 266 million yuan, and 92.956 million yuan in 2020-2022 respectively; inflated operating costs by 228 million yuan, 265 million yuan, and 92.884 million yuan; and inflated total profits by 104,300 yuan, 310,400 yuan, and 71,600 yuan.

The company has corrected these prior accounting errors through restatement and adjusted the financial statements and notes from 2020 to 2024 accordingly.

Two Major Methods Causing Financial Statement Distortion

The company mainly distorted its financial reports through empty turnover trade and illegal client bidding revenue recognition.

From 2020 to 2022, 14 trade transactions between Yingkou Jinjian and Dongfang Group Co., Ltd. and related parties were all empty turnover trades—no actual logistics flow and lacking commercial substance, so revenue should not have been recognized. The specific operation involved signing grain and oil purchase and sale contracts, creating a closed loop on paper, but with no real transportation, storage, or end consumption. Funds circulated between the company and trading counterparties and returned to the start, essentially a “book transfer.”

In 2020, Yingkou Jinjian engaged in client bidding proxy transactions with Heilongjiang Shuguang Farm Grain Trade Co., Ltd. In such transactions, all risks are borne by the client, and Yingkou Jinjian acts only as an agent. Revenue should be recognized using the “net method” for commissions/fees, but the company illegally used the “gross method” to recognize the entire bid amount as revenue, inflating its scale.

Under these two methods, Jinjian Rice Industry inflated revenue by 228 million, 266 million, and 93 million yuan over three years, totaling 586 million yuan—accounting for 1.45%-3.98% of annual revenue; corresponding inflated operating costs totaled 585 million yuan, with total inflated profits of 48,630 yuan.

The company has also announced corrective measures for these issues.

The company states it will focus on core main businesses, redefine trade functions, and remove these related trading companies from its consolidated statements.

In 2024, to fulfill its commitment made in the “Detailed Equity Change Report” to resolve intra-industry competition with the listed company by June 30, 2024, and to support the company’s focus on grain and oil main businesses, Jinjian Rice Industry and its controlling shareholder Hunan Grain Group Co., Ltd. carried out asset swaps. The listed company transferred out three trading companies (including Jinjian Agricultural Products (Yingkou) Co., Ltd.) that mainly engaged in feed trade, further focusing on grain and oil main businesses and optimizing industry structure. Currently, the company’s trading activities are concentrated on grain and oil food processing, supporting raw material procurement for rice, oils, and flour products.

How to Avoid Risks? Are State-Owned Enterprise Leaders’ Salaries Tied to Revenue and Key Performance Indicators?

Since the financial fraud occurred within subsidiaries, identifying related signals seems challenging. What warnings are there for ordinary investors?

Founded in 1998, Jinjian Rice Industry is a listed company controlled by Hunan Agricultural Group, with diversified operations including rice, flour, oil, dairy, and leisure foods. As a state-controlled listed company, its senior management performance evaluation follows the typical framework for state-owned enterprise leaders. The central SASAC assesses subsidiaries based on core indicators like “profit and five ratios,” where profit and revenue are common key metrics. Local SASACs also generally include revenue as a basic performance indicator for commercial enterprises.

According to the official “Jinjian Rice Industry Leadership Compensation Plan (Revised November 2023),” senior management’s performance evaluation is directly linked to the company’s overall operational performance, including revenue scale. This plan was approved by the board and publicly disclosed.

Looking back, the main period of fraud was from 2020 to 2022. Before the fraud, the company’s revenue was growing rapidly, but profits remained weak and fluctuated near loss. Under this performance pressure and considering the performance evaluation mechanism for state-owned executives, does this create a motive for management to commit fraud?

Notably, in 2020, the year of financial inflation, the chairman of the supervisory board and the deputy secretary of the party committee saw significant salary increases compared to 2019. Chairman Wang Zhihui’s salary rose to 569,100 yuan, an increase of over 60%; Deputy Secretary Cheng Liping’s salary increased to 557,800 yuan, up over 50%.

Furthermore, the company’s inflated performance signals that investors can use to avoid risks. Despite high revenue growth, the company’s profitability was poor, with profits oscillating near losses. In other words, high growth did not translate into high profits, and this “virtual fat” could serve as an early warning for investors.

The company’s corrective announcement also emphasizes strengthening governance coordination and establishing a long-term compliance management mechanism.

It states that the company fully leverages the roles of the Party Committee, Board of Directors, Audit Committee, and independent directors to form a comprehensive, tiered, and supervised rectification system. The Party Committee has set up a special team for trade rectification, coordinating the efforts and linking the results to subsidiary performance evaluations and responsibilities. The Board has established internal control systems for risk management and compliance, strengthening full-process oversight. Management analyzes core trade indicators and risks quarterly, with some subsidiaries strengthening risk control personnel. The Audit Committee conducts internal risk self-assessments focusing on related-party transactions and background risks, establishing problem lists and rectification plans with clear responsibilities and deadlines, and tracking progress regularly. Independent directors follow up on self-assessment and internal control implementation, providing professional advice to ensure meaningful and effective rectification.

Additionally, last year’s three-quarter revenue plummeted, but the company turned profitable. The 2025 third-quarter report shows total revenue of 2.373 billion yuan, down 26.82% year-over-year, with net profit of 12.55 million yuan, turning from loss to profit.