Chinese regulators are zeroing in on one of the country’s most prominent artificial intelligence (AI) and computing firms, after a probe uncovered how the chairman’s wife secretly traded 150 million yuan (US$21 million) of company stock during a year-long mega-rally. 

Dawning Information Industry Co Ltd, one of a plethora of Chinese technology leaders blacklisted by the US, described how Zhang Dihua pocketed 590,000 yuan from 232 trades between March 3 2023 and March 14 2024. The company’s shares surged more than 50% during the period.

That was when investors poured into firms expected to ride a wave of AI development across a country locked in a tech race with the US. Dawning, which disclosed the affair after an inquiry from the stock exchange, apologised for the incident but stressed that Zhang kept her husband Li Guojie in the dark.

The company’s shares rose as much as 4.1% on Friday. Chinese regulators have pledged to crack down on insider trading and other market irregularities that persist on relatively young bourses, in a business environment that often prizes connections. 

Still, the rare public admission threatens to tar one of the country’s most influential tech industry figures. Backed by China’s elite science research institute, Dawning is one of a handful of domestic players developing high-performance chips and servers for state-sponsored projects. Washington sanctioned the company in 2019 for its role in supercomputer development, effectively cutting it off from American software and components.

The 80-year-old Li, who has been Dawning’s chairman over the past decade, is a renowned academician and member of Chinese Academy of Engineering since 1995. The Purdue University-trained computer scientist led Dawning through a computing boom spurred by Beijing’s efforts to replace American technology.

More recently, investors identified Dawning as one of the potential winners in AI.

Zhang’s trading started around two weeks before the shares embarked on their rally, which peaked around June that year. The stock then gained another 83% between a trough in February and March 11 of 2024, as excitement over machine-generated content rekindled.

Her actions were considered short-term trading by the spouse of an executive. Dawning said Zhang has turned in all profits, in compliance with securities law. But the company emphasised that the transactions didn’t amount to insider trading based on private information, the filing said, since the chairman wasn’t consulted. Dawning said it will conduct related training for executives, and that Li and his wife will abide by laws and regulations.

  - Bloomberg