Why is China so hungry for US investment capital?

opinion

by Stephen W. Mosher

Shane is keen to raise money in the United States.

The low-cost clothing maker, which operates perhaps the world’s largest network of Chinese sweatshops, has privately notified the SEC that it wants to list on the New York Stock Exchange. And he is throwing money around in Washington to win support from China hawks.

but why? One would think that if a Chinese company had a successful business model, Chinese investors would pour money into it. After all, China is the world’s second-largest economy and has the second-largest number of billionaires after the United States.

So why can’t Chinese companies raise enough capital at home? Or, put another way, what do wealthy and well-connected Chinese people know about their own companies and government that Americans don’t know? Do you know?

Quite a bit, actually.

They know that Chinese companies routinely exaggerate profits and keep multiple books to lure investors. Other than the insiders who actually control the flow of funds, few people know how well or poorly a company is doing.

They also know that the communist regime is an active partner in such deception. One of the keys to the success of Chinese companies relies on hiring corrupt officials as expensive patrons whose sole job is to protect the companies from government coercion. other Corrupt officials and government agencies.

They know that the administration has blocked investigations for decades that would reveal such fraudulent accounting practices. As a result, millions of dollars in fines have been levied against Chinese accounting firms.

But these problems not only persist, but have been made worse by recently passed anti-espionage laws, making people overly concerned with how well or poorly Chinese companies are actually doing. may be applied to.

They also know from personal experience that China’s economy is in long-term trouble due to rising unemployment, declining asset values, and an aging population. unsustainable debt – despite the regime’s desperate efforts to punish those who question the party’s policies.

When international credit rating agency Moody’s downgraded China’s credit outlook to “negative” last month, it warned employees in Beijing and Shanghai to work from home, possibly fearing retaliation.

The Chinese also know that the administration’s policies can be highly successful. Chinese regulators tightened their grip in July 2021, less than a week after ride-hailing company Didi Chuxing went public on the New York Stock Exchange and raised $4.4 billion. The company’s stock price fell like a rock, dropping from a high of $18 to $1.50 in the following weeks. It never recovered.

Above all, Chinese investors understand the important fact that no one’s money or property is safe as long as the Chinese Communist Party is in power.

This is especially true during the Xi Jinping era. Mr. Xi’s anti-corruption campaign is consuming the fortunes of millions of Chinese people, party officials and businessmen alike. Billionaires like Alibaba’s Jack Ma and Evergrande’s Xu Jiaying are in internal exile or in prison.

In fact, the scale of corruption in China is so large, and the scope of Mr. Xi’s campaign so wide, that in the midst of an economic downturn, extorting the assets of corrupt officials has become the government’s only major source of income. There is.Chinese dissident journalist Jennifer Zeng I estimate that The amount confiscated in the past 10 years could reach $30 Trillion dollars, or about twice the country’s annual GDP.

This anti-corruption campaign, which is actually expropriation of property by the government by another name, shows no signs of slowing down. Indeed, Mr. Xi has now given the green light to pursue officials who retired more than a decade ago.

Not only that, he is also reportedly demanding that party officials in good standing transfer one-third of their assets to the state.

So they flee in search of a safe place to put their money and personnel beyond the reach of the communist state. This has boosted property values ​​in places like Tokyo, Melbourne and Palm Beach, even as property values ​​in China have collapsed.

Is it any wonder that Chinese companies are having trouble raising funds in their own country?

It is said that communist revolutions always end up devouring their own revolutions. However, the Chinese Communist Party under Xi Jinping has taken this self-cannibalism to a new level.

If American investors don’t want to be the protagonists of this feeding frenzy, they would be wise to decline the invitation to dine.

Stephen W. Mosher is director of the Population Research Institute and author of “Bullying Asia: Why the China Dream is the New Threat to World Order.”