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SHANGHAI (Reuters) - China said foreign short-sellers targeting Chinese companies listed in the U.S. are engaged in a "malicious act", in an editorial published by the official Xinhua news service on Wednesday.
The editorial, titled "U.S. firms poison reputations of China start-ups for profit", represents the first time Beijing has taken a position on a running public brawl between a group of Chinese technology executives and Los Angeles-based short-seller firm Citron Research.
The commentary called for the U.S. Securities Exchange Commission (SEC) to investigate short sellers like Citron and suggested that Chinese companies might stop listing in the U.S. if they don't receive better treatment.
"With the U.S. economy floundering for so long, the United States cannot afford to have a capital market that attracts little interest or participation from Chinese companies."
On Monday, former Google China executive Kai-fu Lee and over 60 other Chinese business leaders published an open letter accusing Citron Research of deliberately spreading lies about listed Chinese companies, in particular Qihoo 360 Technology QIHU.K, to profit when their share prices decline.
Citron Research denied the charges, and said that Lee has a conflict of interest because he has a business relationship with Qihoo 360.
Short-sellers, who borrow stock to sell at a high price and buy back the stock at a lower price if share values drop as expected, earned vast sums from successful attacks on overseas-listed Chinese companies in recent years.
The Xinhua editorial admitted that short-sellers did find genuine problems at some companies but said that they are now unfairly targeting quality Chinese firms.
Another company targeted by foreign short-seller reports, China's Sky One Medical Inc CSKI.PK, was charged with securities fraud by the SEC on Wednesday, and investigations into other Chinese companies prompted by short-seller allegations remain ongoing.
Hong Kong and U.S. regulators want Chinese subsidiaries of Western auditors to hand over documents related to audits of Chinese companies accused of financial irregularities but so far the subsidiaries have refused, citing state secrecy laws.
Long-running negotiations between U.S. accounting securities regulators and their Chinese counterparts have still not reached a solution to allow American inspections of audit firms or access to their work papers.
Reporting by Pete Sweeney; Editing by Eric Meijer