It’s a testing time for devotees of Chinese small-caps. RINO International of Dalian, a Nasdaq-listed clean-tech company under suspension from trading, fell as much as 72 per cent in the five days after Hong Kong-based research firm Muddy Waters accused it of cooking the books. RINO has since stated that it did not enter into two contracts for which it reported revenue during 2008 and 2009; at least nine US law firms are now limbering up for class actions.

Investors have tended to overlook discrepancies between the profits and revenues reported to China’s record keeper, the State Administration for Industry and Commerce, and the numbers filed to the Securities and Exchange Commission. They have also glossed over short-lived audit assignments: Universal Travel Group of Shenzhen, a NYSE-listed online tour operator subject to recent heavy share price falls, has been through five different auditors since 2006.

Until now, aggregate performance has compensated for the rough and tumble that led to these slip-ups. The USX China, an index of 191 US-listed Chinese companies, including RINO and Universal Travel, has gained 360 per cent, compared with a price decline of 9 per cent by the S&P 500, since its inception in 2000.