Kangmei Pharmaceutical's Unresolved Saga: 2.5 Billion RMB Bailout and Recovery Trapped in Dilemma
Zebra Consumer | Shen Tuo
After four years, Kangmei Pharmaceutical has received a first-instance judgment in its lawsuit seeking compensation from former actual controller Ma Xingtian and others. The court ordered the Ma couple to compensate the company nearly 1.4 billion RMB, while the former board secretary and auditing firm bear corresponding supplementary liability for clearing debts.
However, this largest financial fraud case in A-shares is far from over. Given that the judgment is still within the appeal period and the court did not fully support the compensation claims, compounded by practical obstacles such as the seizure of debtors' assets and the auditing firm's deregistration leaving it unable to pay, there remains significant uncertainty regarding how much of the nearly 2.5 billion RMB in losses Kangmei initially covered for investors can ultimately be recovered.
Rise Through Entrepreneurship
Most people first became familiar with Kangmei Pharmaceutical (600518.SH) through the high-frequency broadcast of the music MTV "Kangmei Love" on CCTV in 2008.
Starring Ren Quan and Li Bingbing, with vocals by Tan Jing, the work portrayed the entrepreneurial journey of a fairy-like couple who "aimed to benefit all living beings and connected hearts across the world" through beautiful visuals. The prototypes were Ma Xingtian and Xu Dongjin, the founders of Kangmei Pharmaceutical.
At that time, Kangmei Pharmaceutical had been listed on the capital markets for seven years and was in a cycle of national expansion, regarded by the market as a high-growth leader in traditional Chinese medicine (TCM) decoction pieces.
Ma Xingtian was a grassroots entrepreneur. In the mid-to-late 1990s, after dropping out of high school, he made his first pot of gold through the trade of Panax notoginseng. Later, leveraging his wife Xu Dongjin's background in a family of TCM practitioners, he opened a pharmacy store.
In 1997, at the age of 28, Ma Xingtian founded Kangmei Pharmaceutical in his hometown of Puning, marking a major turning point in his life.
In 1998, the company developed national new drugs such as Luoxinping, Lile, and Nuosha, and passed the national GMP certification, propelling the enterprise onto a fast track of development. After ringing the opening bell in 2001, the company immediately adjusted its development strategy, gradually weakening its chemical drug products and fully transitioning to the TCM decoction pieces sector.
In 2002, Ma Xingtian invested hundreds of millions to build the country's largest modern industrial demonstration base for TCM decoction pieces, using standardized production methods to solve the problem of unstable TCM quality. The following year, Kangmei Pharmaceutical's TCM decoction piece production base successfully passed GMP certification.
In 2005, Kangmei Pharmaceutical pioneered the introduction of small packaging for TCM decoction pieces within the industry, changing the traditional method of hand-grabbing and weighing herbs. Various Chinese medicinal materials were packaged in bags of multiple specifications, gaining recognition from regulatory authorities and laying the foundation for securing its position as an industry leader.
Crisis Breeds
After going public, Kangmei Pharmaceutical continuously increased investment in TCM decoction pieces and other businesses, advancing the layout of the entire TCM industry chain.
In 2002, the company entered its 2.0 development stage. Over the next decade, it completed the layout of TCM planting bases, production bases, and professional TCM material markets nationwide, establishing unified standards that led industry norms, continuously amplifying its leading advantage.
From 2010 to 2012, the company achieved operating revenues of 3.308 billion RMB, 6.08 billion RMB, and 11.165 billion RMB respectively, with net profits attributable to shareholders of 716 million RMB, 1.005 billion RMB, and 1.441 billion RMB respectively. By the end of 2012, total assets reached nearly 18 billion RMB, successfully ranking among China's Top 500 Private Enterprises.
However, Ma Xingtian's ambitions extended far beyond the TCM material industry. In 2012, Kangmei Pharmaceutical launched its 3.0 phase, proposing a cross-boundary expansion plan from medicine to healthcare. Leveraging policy opportunities such as the Belt and Road Initiative, Healthy China, and Internet Plus, it aimed to create a closed loop for the entire TCM industry chain and sprint to become a leading enterprise in the pharmaceutical and big health industries.
In July 2017, at the 20th anniversary conference of Kangmei Pharmaceutical, Ma Xingtian disclosed externally that the company's business had penetrated all key links in the upstream, midstream, and downstream of the TCM industry chain; total assets had increased from less than 200 million RMB in 1997 to nearly 60 billion RMB in 2017; market capitalization had climbed from 890 million RMB at listing to 100 billion RMB, with an employee scale exceeding 10,000.
Perhaps no one expected that beneath the prosperous facade of the grand celebration, a storm of financial fraud was quietly brewing.
At the end of 2018, routine supervision by the CSRC found doubts about the authenticity of Kangmei Pharmaceutical's financial reports. The company's financial statements from 2016 to 2018 contained major false circumstances, involving inflating deposits with fake bank documents, forging business vouchers for revenue fraud, and diverting funds to related accounts to trade the company's own stock. Simultaneously, the auditing firm Zhengzhong Zhujiang Certified Public Accountants was investigated.
In May 2020, the CSRC issued penalty determinations: Between 2016 and 2018, Kangmei Pharmaceutical cumulatively inflated monetary funds by 88.681 billion RMB, operating revenue by 29.128 billion RMB, and operating profit by 4.101 billion RMB, with excessive interest income of 510 million RMB. The sum of these frauds made it the financial fraud case with the highest involved amount in A-share history.
Aftermath of Fraud
In July 2020, Ma Xingtian, the former actual controller of Kangmei Pharmaceutical, was subjected to compulsory measures by the police. One year later, he was sentenced to 12 years in prison for crimes including manipulating the securities market and illegal disclosure.
With Ma Xingtian imprisoned, Kangmei Pharmaceutical's operations fell into despair. In the three years from 2019 to 2021, the company suffered losses twice, accumulating losses exceeding 35 billion RMB.
At the end of 2021, Guangdong Shennongshi, an affiliate of Guangzhou Pharmaceutical Holdings, extended a helping hand, promoting the bankruptcy reorganization of Kangmei Pharmaceutical to resolve existing debts through cash, shares, and trust interests.
Meanwhile, the company's financial fraud triggered the nation's first securities class action. In November 2021, the Guangzhou Intermediate People's Court ruled that Kangmei Pharmaceutical must compensate 52,037 investors for investment losses totaling approximately 2.459 billion RMB, with Ma Xingtian, Xu Dongjin, former board secretary Qiu Xiwei, and Zhengzhong Zhujiang bearing joint and several liability for full compensation.
According to the reorganization plan, Kangmei Pharmaceutical took the lead in covering all investor payouts. In April 2022, the company filed a recovery lawsuit against the remaining jointly liable parties through the court, beginning a four-year judicial pursuit.
On July 20, 2026, the first-instance judgment for the above recovery case landed. Ma Xingtian and Xu Dongjin were ordered to compensate Kangmei Pharmaceutical 1.396 billion RMB; Qiu Xiwei bears supplementary clearing liability within the limit of 142 million RMB; and Zhengzhong Zhujiang bears supplementary compensation liability within the scope of 141 million RMB.
The court did not fully support Kangmei Pharmaceutical's combined recovery claim of 2.608 billion RMB against the Ma couple and Qiu Xiwei. The case is currently in the appeal period, and subsequent steps may involve a second instance and asset execution, all carrying significant uncertainty.
Currently, multiple practical obstacles hinder the realization of the recovery. First, the assets under the names of the primary debtors, the Ma couple, have long been seized and disposed of, making the scale of effective assets available for execution unclear. Second, the auditing firm Zhengzhong Zhujiang has long lost its ability to pay. The CSRC fined and confiscated 57 million RMB from the firm in 2021; the firm only paid a fine of 5.7 million RMB, leaving no remaining assets for execution, and it canceled its practice license in July 2022.
Preliminary calculations show that the total recovery amount from this first-instance judgment is nearly 1.7 billion RMB. The final compensation amount the listed company can recover may shrink significantly, making it difficult to fill the loss gap.
The old debts left by this financial fraud case are unlikely to be completely settled in the short term.
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