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Re: None

Thursday, 07/31/2014 7:06:26 PM

Thursday, July 31, 2014 7:06:26 PM

Post# of 10144
CCCL 20-F addresses the issues that led to Grant Thornton's resignation


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With respect to the specific items raised by GT, we believe each item has been addressed as follows:

(i) Bank Confirmation Received from Pingan Bank. GT informed us that it received a bank confirmation from Pingan Bank, and that the bank’s teller at Pingan Bank made a notation on the confirmation stating that we also had a RMB30 million bank acceptance note issued by us (similar to a post-dated check) outstanding as of December 31, 2013. We responded to GT that this was a clerical error committed by the bank. In turn, GT asked us to request that the bank provide an explanation for the erroneous confirmation and that the bank send that explanation directly to GT. We made a written request that the bank provide an explanation directly to GT, and understand that approximately one week later, GT received a letter from the bank explaining that the previous confirmation was a mistake and that there was no outstanding bank acceptance note. GT has never provided a copy of that correspondence to us, but we understand that the correspondence was duly “chopped” and that it was issued by a different department at the bank. GT questioned the validity of the bank’s correction of its initial confirmation, and informed us that a bank teller at Pingan Bank told a GT representative that she would have been the person at the bank responsible for issuing any such follow-on correspondence and that she did not generate the correspondence that explained that the initial confirmation contained an erroneous reference to an outstanding bank acceptance note.

(ii) Taxation Information from Local Government Website. GT notified us that it had noticed a posting on a local district government website that indicated that we are is one of the top taxpayers in that district and that we had paid RMB10-20 million in taxes (income tax and VAT) for 2012. However, GT raised the concern that our records and financial statements reflect that we paid in excess of RMB100 million in taxes in 2012. We cautioned GT that the local government’s calculation is different from the tax bureau’s calculation, and also shared our belief that the local government website might only reflect the tax paid to the domestic tax bureau and not the tax paid to the national tax bureau. We thereafter sought and received a certification from the tax bureau that all taxes due and owing by us for the subject periods have been paid.

(iii) Similar Hand Writing on Three Accounts Receivable Confirmation Envelopes. GT informed us that it noticed that there were accounts receivable confirmations sent to GT from three customers that appeared to have “very similar hand writing” on their envelopes. According to GT, the three confirmations are from three different companies in three different locations in China. When so informed by GT, we checked with our distributors and customers and confirmed that each sent out its own confirmation to GT. We offered to assist GT in obtaining additional comfort regarding the status of the amounts confirmed. We are aware that certain of our employees did assist their customers with the process to assure that the confirmations were received by GT in a timely fashion. That assistance involved the preparation of the return envelopes in which certain customer confirmations were deposited and transmitted. Said employees did not complete the confirmations, and there has been no indication that the confirmations were anything but accurate.

(iv) Customer Closed Its Business. GT informed us that it noticed in March 2014 that one of our distributors is listed as “de-registered” on the government website. That particular distributor purchased RMB23 million in product from us in 2013 and had a RMB13 million accounts receivable balance at the end of the year. We notified GT that the distributor informed us of its intent to close its business and paid its outstanding balance with us before the distributor closed.

In addition to the foregoing explanations provided by our management, the Audit Committee discussed with GT implementing additional special procedures or conducting an internal investigation in order to address GT’s concerns. GT rejected these suggestions and, instead, insisted that we conduct an independent investigation of the concerns outline above, which, in turn, would have rendered the timely completion of the 2013 audit and timely filing of the 2013 Annual Report all but impossible. The Audit Committee and the Company also believe that GT’s request for an independent investigation was premature and disproportionate given the nature of the concerns raised. In addition, a majority of the Audit Committee believed that communications between GT and our management and the Audit Committee had become significantly impaired. In light of the foregoing, the Audit Committee and the Board voted to dismiss GT and to engage Crowe HK to implement additional procedures in the audit of the Company’s financial statements for the fiscal year ended December 31, 2013 and to re-audit of the prior fiscal years ended December 31, 2012 and 2011 to address the questions raised by GT.

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