Cover Story: China Forestry’s Fall Under Corruption Cloud Reveals Weakness in State-Owned System
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China Forestry Group Corp., the central government-owned lumber giant that is teetering under the weight of its debt, faces investigations into corruption and mismanagement by top executives, including bribery allegations against former Chairman Song Quanli.
The company’s deepening financial struggles were revealed in a July response to a regulatory inquiry by timber trader Jiangsu Wanlin Modern Logistics Co. Ltd. that revealed 35.26 million yuan ($4.98 million) in overdue payments from two China Forestry subsidiaries.

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- China Forestry Group Corp. is facing severe financial struggles, with a debt load of 156.7 billion yuan and numerous lawsuits filed by creditors since its takeover by China Three Gorges Group in 2023.
- The company's financial collapse was fueled by fraudulent practices, including issuing non-existent trade transactions and engaging in dubious financial dealings, leading to a major investigation into mismanagement and deceit.
- Failed investments, such as the acquisition of Rugao Port and the restructuring of Rongsheng Heavy Industries, further exacerbated its financial crisis, accumulating significant unrecoverable debts and plunging into legal troubles.
China Forestry Group Corp., a state-owned enterprise, is grappling with severe financial and operational challenges stemming from profound mismanagement and corruption at the executive level, leading to numerous allegations against its former Chairman, Song Quanli, for bribery and other corruption-related issues. This has sparked investigations into the malpractices within the organization, exacerbating the company's difficulties in dealing with its immense debt burden. [para. 1]
The enterprise's fiscal fragility was unveiled partially when a regulatory inquiry was made by Jiangsu Wanlin Modern Logistics Co. Ltd., which highlighted outstanding debts totaling 35.26 million yuan ($4.98 million) from China Forestry’s subsidiaries. Wanlin had conducted timber sales with these subsidiaries, but the parent company failed to fulfill its financial responsibilities, following a 2023 strategic takeover by China Three Gorges Group Co. Ltd. State intervention rarely happens, so this development sent ripples across the market, emphasizing the company’s towering debt obligations of 156.7 billion yuan by the third quarter of 2023. Since early 2024, the company has been inundated with lawsuits from creditors demanding debt repayment. [para. 2][para. 3][para. 4]
Founded in 1999 through the merger of nine companies, China Forestry soon epitomized an SOE engaged in rapid expansion, especially post-2013 under new leadership, making ambitious investments in global forestry resources. By 2017, the company was responsible for 20% of China’s timber imports, driven in part by its mixed-ownership reform strategy, creating 78 joint ventures between 2013 and 2018. Despite raising 9.4 billion yuan from private investors, this path ultimately led to a precarious financial position characterized by debt as these ventures indirectly supported fraudulent transactions. [para. 6][para. 7][para. 8]
China Forestry’s troubles underscore widespread fraudulent activities. As revealed by audits, subsidiaries of the company issued unauthorized financial instruments, facilitating the illegal transfer of 1.24 billion yuan to third-party firms by disguising fake advance payments as transactions, spiking the company’s receivables to an astonishing 75.8 billion yuan by 2020. Prominent individuals within these scams include Hu Lingfeng and firms tied to him, which owe approximately 5 billion yuan collectively to China Forestry. This further fueled countless unpaid debts and litigation actions. [para. 11][para. 12][para. 13]
A prominent misuse of finances involved investments in Rugao Port, a site purportedly repurposed as a coal and iron trade hub but instead became a hotbed for fictitious trade transactions. The venture amplified the group's liabilities, which jumped from 2.3 billion yuan in 2014 to nearly 10 billion yuan by 2018 following dubious financing, largely contributing to China Forestry's worsening fiscal situation. [para. 19][para. 20][para. 21]
Though attempts to restructure and redirect financial obligations have been made, the continued financial mismanagement and entrenched fiscal liabilities have made it extremely difficult to reconcile accounts. Plagued with a 69% debt-to-asset ratio by September 2023, the company remains in dire straits despite efforts to avail credit lines from major state-owned banks, deeply intertwined with fraudulent operational undertakings, thus complicating debt resolution processes further. [para. 32][para. 34][para. 35]
This saga highlights an ingrained culture of deceit within China’s SEG structures, signaling a substantial challenge that continues to inhibit China Forestry’s viability and necessitates proactive remedial strategies moving forward. [para. 39]
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