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Chinese companies seeking listings overseas should improve their fundamentals and have their financial health verified beforehand so as to avoid the scandals that happened last year in the US, legal and accounting experts told a forum in Tianjin Thursday.

Many Chinese companies that went public in the US through reverse mergers only had profits on paper, and since their internal control was weak, it was easy for them to be challenged by companies such as Muddy Waters Research via short-selling, Jin Jian, a partner at US auditing firm Deloitte Touche Tohmatsu, told a group of Chinese managers and investors in Tianjin.

US investors suffer from "prejudice" against Chinese companies, especially in terms of internal control, since the breakout of China stock scandals in the US last year, Alan Seem, managing partner of the US law firm Shearman & Sterling LLP, said at the same event.

Because the US allows class suit actions, it is more likely for a listed company to be sued there, with the focus usually zeroing in on weaknesses in internal control and financial reporting, Seem noted.

US equity research firm Muddy Waters Research last year released several reports on financial discrepancies found in some US-listed Chinese companies, and Deloitte's Shanghai branch abruptly resigned as the auditor of Longtop Financial Technologies, a Chinese financial software provider, on May 22, 2011 after uncovering "numerous improprieties" during its audit.

A series of similar scandals resulted in many Chinese stocks being delisted in the US and strong selling of Chinese stocks in the global markets.

"There is a prevailing 'Chinese discount' in the international capital markets, and it will have a negative impact on companies aiming for overseas IPOs," said Wang Jiuhua, CFO of Frankfurt-listed Zhongde Waste Technology AG.

VIPshop.com, the first China stock listed in the US since August, continued its losing streak to close at $4.5 per share yesterday in New York, sliding over 30 percent from its debut price on May 22.

"The window for Chinese IPOs in the US has not opened yet. VIPshop's poor performance may affect the listing progress of other Chinese companies in the pipeline, especially e-commerce companies without a profitability model," said Feng Yuhui, a representative at the New York Stock Exchange's Beijing office.

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