What began as a financial rescue has devolved into a bitter legal feud between Guizhou Bailing (002424.SZ), known as the "first Miao medicine stock," and Huachuang Securities, the sole securities firm in Guizhou province. Once hailed as a model of market relief, their partnership has now escalated into public accusations and courtroom clashes.
At the heart of the dispute are allegations that Huachuang Securities violated the original intent of the bailout by attempting to seize control of the listed company. Guizhou Bailing Chairman Jiang Wei claims Huachuang deliberately delayed exiting the rescue plan, shorted the company's stock, and even orchestrated whistleblowing by its appointed executives—actions that led to Guizhou Bailing being labeled with "ST" status and scaring off potential investors.
The conflict traces back to 2018 when Jiang, facing personal debt and high stock pledges due to tourism investments, accepted Huachuang's 1.4 billion yuan bailout. The agreement involved two relief funds acquiring 11.54% of Guizhou Bailing's shares (161 million shares) from Jiang and his affiliates, plus 361 million yuan in stock pledge loans. The deal stipulated a 3-5 year exit window through market sales or buybacks, but neither occurred as planned.
Jiang alleges Huachuang failed to divest shares when prices peaked at 11.97 yuan (30% above Huachuang's cost basis), then engineered a 2024 whistleblower campaign by five Huachuang-appointed executives. Their举报 triggered an "ST" designation in May 2024, causing share prices to plummet and derailing talks with a state-owned strategic investor. Notably, one finance executive later claimed their举报 signature was coerced.
Legal actions intensified in 2025: Huachuang sued for 1.77 billion yuan in unpaid principal and interest, while Jiang countersued demanding share sales and damages. The securities firm also faces accusations of using its bailout shares for short-selling—with融券 volumes spiking 10-130x normal levels during key periods when Jiang sought to sell shares.
The controversy sheds light on Huachuang's aggressive capital strategies under Tao Yongze's leadership. Since its 2016反向 takeover of parent Huachuang Yunxin (formerly Baoshuo Co.), the firm has employed employee stock plans (with 5x returns for insiders) and contested acquisitions like its protracted battle for Pacific Securities (601099.SH), where it ultimately gained 10.92% control via court auction at below-market rates.
Experts warn this case exposes systemic flaws in China's 2018 corporate bailout wave. Key issues include vague优先回购权 clauses (unclear whether buyback options are rights or obligations) and inadequate controls against救助方 overreach. Proposed solutions range from第三方托管 of corporate seals to regulator-approved exit timetables.
As both sides dig in, the dispute serves as a cautionary tale: bailouts meant as temporary bridges risk becoming permanent battlegrounds without clear boundaries and enforcement mechanisms. For markets watching closely, the outcome may redefine how future rescues balance emergency relief with investor protections.
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