Coping With China's Corruption Curse

A Hot Tip about Business Culture in China

Last updated: 15 Sep 2011

Words of wisdom to help you deal with this ethical dilemma from those who endured and prospered for 15 years behind the Great Wall...

August 15, 2011 Welcome to the land of never-ending bribes. A survival guide for frustrated foreign business owners who simply cannot resist the lure of Chinese markets ReRc ently a week cannot pass without another revelation of another Chinese stock fraud that is exposed later rather than sooner. Investors blinded by greed and the lure of a quick market bonanza have been casting common sense and due diligence to the roadside just as soon as they see a familiar name peddling the stock, Goldman Sachs, Morgan Stanley, etc. Their faith and confidence in these Wall Street giants mentally mitigates the nagging questions they eventually ignore. After all, everyone is throwing money at Chinese companies and they don?t want to be the last one in buying at higher share prices. But is the lowest hanging fruit always the sweetest, or just the easiest? Since short-selling s banned in China, it is not difficult to understand how easy it is to manipulate stock prices especially when Chinese regulators themselves have their family fortune invested in the stock markets ? either the Hangseng or the the Shanghai Index two of the most active markets in the world in terms of volume. Over 150 million Chinese families have more the equivalent of $100,000USD invested in the PE markets. The stock market is their quickest route to easy wealth, and in a land where bribery has become a 5,000 year tradition, buying a new release or a creative accountant is not difficult. In Beijing only $10,000 will buy either, and the resulting outcome can make millions for someone who quickly dumps before the fraud is discovered and revealed. Virtually all the news and Internet media is controlled and censored in China, ostensibly for ?quality control purposes? but some suggest that bad news about a stock is always delayed until the elite have safely bailed and are safely on the ground rolling up their tell-tale parachutes before the proverbial *hit hits the fan. Due diligence specialists at the China Trade Commission in Beijing now estimate that a full 30% of all publicly traded companies in China rely on stock fraud to prosper. They were the first to wave the red flags on Alipay and China Media Express and recently issued a fraud alert on two dozen similar situations. They have sounded the alarm on 39 companies in just the last 90 days, and over 300 companies since 2008 (See listing below). But is anyone listening? In fact the China hype has become deafening. Stories of instant millionaires and b illionaires fill the pages of local newspapers and magazines. One cannot walk down a Beijing street anymore without seeing a dozen Beemers, Porsches, or Lamborghinis parked in front of lavish restaurants and private clubs that carry a $1,000 cover charge. Even the 20 year old girl pictured above owns two Lamborghinis. Her name is Guo Mei Mei and she works for the China Red Cross. She claims her boyfriend got ?lucky? in the stock markets. Many government officials admit that ?luck? has nothing to do with it. Then there is Jack Ma, perhaps China?s second or third wealthiest man, and Yahoo?s joint venture partner in China. Mr. Ma owns the infamous Alibaba on- line etrade site which according to Ma himself ?makes a million dollars a minute?. With over 10 million subscribers, it is no great mystery why. But Billionaire Ma was not content with his huge earnings and many Yahoo shareholders now claim in a class action suit that he swindled Yahoo out of over $100,000,000 a year in gross revenues. Their allegations of a sophisticated fraud can be found at Bloomberg dot com, Yahoo News, and in this detailed Forbes expose article: http://www.forbes.com/sites/gadyepstein/2011/05/16/yahoo-alibaba-spat-over-alipay-jack-ma-needs-to-say-more/ Chinese reporters or bloggers who write about this controversial Alipay scandal either get threatened or censored online. At least 500 government officials are know to have substantial holdings in Ma?s many ventures. Carting him off to prison fraud would be disastrous for their portfolios. Thus is the reality of the China stock market scene and only the locals seem to be paying attention. As more and more foreigners are drawn into the Chinese markets like moths to a flame, the local investors are quietly cashing out as they anticipate a market implosion growing near. All the time Chinese government officials ply the world trumpeting the success and growth of China, like many pied pipers leading us all to financial fates with an irresistable tune. When and where will it all end? Bloomberg and Hong Kong insiders say not any time soon, but they all agree on the dismal destination. What goes up must come down and in a stock world with no short selling, massive sell-offs could be sparked any day that the truth of the widespread corruption meets the sunshine. From traders on the floor to retail and institutional brokers ? they all have their own agendas and game plans. The only news and foecasts they believe are those they buy themselves. ?Our advice ? look twice before you leap, and sort fact from fiction before removing your wallet from the safety of your pocket.? - Anthony DeMarco, CTC Director The sad news is that foreign business owners who originally came to China to grow a viable and profitable business with a methodical business plan, soon see hundreds of others making stock market fortunes, and quickly abandon their stable business to claim their slice of the PE pie. For a lucky few with the right ?guanxi? (chinese for contacts) the sudden switch is indeed lucrative. But for most, foreign investors are the ones easily spotted ? holding the bag at the end of the day. For a foreigner who is not a corporate officer of a multi-national corporation like Siemens, Motorola, or Microsoft, legal recourse and remedy in China is almst non-existenet. ?Every investor will live and die by their own choices, and that is precisely why due diligence is the buzz word in Beijng as well as Wall Street.? says Ian Greene, chief market analyst for a Tier 1 investment bank in Shanghai, who then went on to predict? ?The last to profit from the China gold rush will be those who first invested in professional due diligence. Those who remain shall all be victims.? To read the conclusion of ths article and obtain a listing of China?s biggest red flags stocks, merely send an email to ChinaMarketNews at ChinaTradeCommission dot org and the full article will be sent to you free of charge withn 24 hours.
Posted: 28 August 2011, last updated 15 September 2011

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