Financial reporting in China was back in the spotlight again Friday, with one strategist claiming Chinese businesses were using "accounting trickery" to mask underlying credit problems.
China looks like it's heading towards a credit bust, Chris Watling, CEO and chief market strategist at Longview Economics told CNBC on Friday, explaining that cash borrowed by mainland firms is primarily being used to service debts.
"We've been looking a lot at Chinese accounting recently and it is highly questionable," he said.
The corporate sector is increasing borrowing to pay interest, while instances of fraud and default are on the rise, he added in a note published Thursday.
He said there were many examples where operating profit has been high, while cash flow has been negative — a "classic sign" that firms aren't generating a profit, he added.
Watling highlighted that the balance sheets of commercial banks were particularly worrying.
"In an economy which has undergone a credit boom, all of the lending is not necessarily readily apparent from the top level data," he said.
"Accounting trickery is often at work," Watling claimed.