The chairman of the Chinese smartphone maker Gionee made a bet that could cost the company its life.
According to the South China Morning Post, the company is in danger of going bankrupt after chairman Liu Lirong lost more than $1.4 billion in company funds at a casino. There is some dispute over just how much was lost at the Hong Kong casino, with some reports saying he lost $1.4 billion — but Lirong claiming that it was actually one-tenth of that amount.
Lirong has apparently admitted to the fraud, saying that he did “borrow” company funds for his gambling trip, however.
“I did participate in gambling in Saipan, but how could I possibly lose that much (10 billion yuan)? If it is true, shares of Imperial Pacific [the casino owner] should have surged,” Lirong told Securities Times after the report became public that his gambling losses may have caused the company to face bankruptcy.
But some have disputed that it could have been the smaller amount that Lirong claims, noting that a massive company like Gionee would not be in danger of bankruptcy with just $144 million in lost funds. The company had also claimed that high marketing expenses were the cause for the bankruptcy, but this was disputed by a number of Chinese media outlets that pointed to the gambling losses as the real reason.
The story generated worldwide interest, and could destroy the company at a time when Chinese smartphone makers are set to boom worldwide. As Forbes noted, Chinese smartphone manufacturers had long been confined to local markets, but the companies Huawei and Xiaomi have started to make inroads in the massive market in the United States.
“Although the U.S. is not the largest smartphone market by volume, it is one of the most lucrative markets from a revenue and margin perspective,” the report noted. “For instance, ASPs of smartphones in North America in 2017 are expected to stand at $567, compared to just about $215 in Asia Pacific. Moreover, the U.S. wireless market has undergone some changes in recent years.”
#Gionee, once a major player in #China's smartphone industry, is almost bankrupt due to overly high marketing expenses as claimed. But shareholders suspect CEO’s over CNY10 billion gambling debts is the real cause. pic.twitter.com/285cP5km2J
— Yicai Global 第一财经 (@yicaichina) November 23, 2018
These changes create opportunities for Chinese companies, though it is not clear if Gionee will be around to seize them. The massive gambling losses of company funds have either sent the company into bankruptcy — or put it on the verge of that point, depending on the varying reports. The company has been one of the largest phone manufacturers in China, and had recently expanded its footprint to other Asian nations — including India, Thailand, and the Philippines.