A business executive has gone on trial for allegedly perpetrating a contract fraud that involved persuading one of China's largest companies to open letters of credit (L/Cs) for copper shipments.

Yang Shen, general manager of Shanghai Meihang Digital Technology (SMDT), denies the fraud charges and blames the losses incurred in the shipments on market price discrepancies.

Contract fraud

Yang allegedly perpetrated a contract fraud that caused more than 90 million yuan (US$11.25 million) in losses to another company.

A Shanghai court heard that he allegedly signed on behalf of SMDT two contracts with China Worldbest Group Jiangsu Co Ltd.

Copper shipments

The contracts specified two import shipments between December 2003 and December 2004 of electrolytic copper, one for US$6 million and the other for US$30 million.

Prosecutors allege that Yang persuaded Worldbest to open L/Cs to finance goods by making a cash down payment and promising to pay the balance later.

Market forces

It appears, however, that Yang was unable to meet this promise. He maintains this was because the copper was ordered at a higher price than it was sold for.

Therefore, Yang claims he was carrying on a legitimate business deal that resulted unintentionally in losses caused by differences in market prices and forward price expectations that were off the mark.

Poor governance

Separately, Worldbest is one of several major companies named by the Shanghai Stock Exchange and the Shenzhen Stock Exchange in a list of major shareholders and companies that are alleged to have misused funds raised through publicly-traded shares.

The move by the two stock exchanges is seen as an effort by the authorities to improve standards of management and corporate governance in China's listed companies.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.