Baidu faking data

I have often warned against investing in Chinese companies, and said I wouldn’t invest even in the giants like Baidu, because of the prevalence of fraud. A lot of people considered me to be an old fuddy-duddy, who didn’t accept the glories of Chinese investing. Here’s a small excerpt from a current article from technode. There’s lots more besides what I excerpted. Baidu has fallen from a high of $284 to $180 this year. (Down 37%),
Saul

Baidu among 80 plus companies found faking corporate information

The Chinese government has censured search giant Baidu and more than 80 other companies for providing it with false or misleading information about their business activities.
The Ministry of Industry and Information Technology (MIIT) found in an investigation that 85 of the 1,374 enterprises scrutinized reported erroneous information in documents including their corporate annual findings. The investigation also included checks to see whether the companies followed industry-related rules.

The rule-breaking companies will be included in a government database of companies that have conducted illegal activities, which may limit their access to new business licenses, the MIIT said in a statement. Baidu refused to comment on the investigation…

https://technode.com/2018/12/12/chinese-government-named-bai…

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I have often warned against investing in Chinese companies, and said I wouldn’t invest even in the giants like Baidu, because of the prevalence of fraud. A lot of people considered me to be an old fuddy-duddy, who didn’t accept the glories of Chinese investing.

I stand in complete agreement with you on this issue, Saul. I’ve enjoyed a bit of success with BIDU, having bought shares at $60 and selling at $120. However, once I had money in the game, I began to study the Chinese stock market and Chinese stocks. I didn’t like most of what I learned. I find the Chinese wheeler-dealers to be amoral at best. I prefer folks with some sort of moral compass.

For those seeking to read up on egregious Chinese business behaviors, I direct you to look up Carson Block, founder of Muddy Rivers, LLC, a noted critic (and now a noted short-seller). He tells some mighty scary stories of malfeasance.

https://www.barrons.com/articles/muddy-waters-block-starts-s…

Muddy Waters founder Carson Block won plenty of admirers when his research firm revealed accounting issues and other irregularities at numerous China-based companies. Now you might get the chance to invest with him.

Block has continued to warn investors of shortcomings in public companies and has launched Muddy Waters Capital LLC, a hedge fund that will use activism along with a long-short investment strategy—with an emphasis on the short portion.

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Hi Saul,

Baidu among 80 plus companies found faking corporate information

The Chinese government has censured search giant Baidu and more than 80 other companies for providing it with false or misleading information about their business activities.

I am not disagreeing with you but it is the Chinese government bringing these charges against Baidu. It’s hard to guess really what is going on because maybe Baidu just made an enemy in the Government. Sort of like Amazon and Trump. The problem is that the Chinese government can actually shut down the business.

Andy

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Couldn’t agree more. I know someone who worked in China. Corruption so bad they had to hire a guy to watch their guy and another guy to watch the guy watching the first guy. Absurd. Whether or not the gov’t is playing games only makes the whole thing stink worse.

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Chinese corporate behavior is coming back to roost. Huawei is not only losing business but may be utterly shut out of 5G networks in Europe due to security concerns. European telecoms and governments are concerned if they use Huawei gear that the software may be compromised leaving the new 5g networks more open to hacking (presumably from the Chinese government).

The same concerns are hurting the company in the United States.

Meanwhile companies are moving their production supply chains out of China into countries like Vietnam or Malaysia or the like.

We may be in a trade war with China, but China is losing. Economically they hurt more because we are their largest customer, but worse I think for China is their methods and ethics are isolating them economically. It is in China’s best interests, it compellingly seems (but it is not up to us to decide), to reform their laws and processes and ethics, to fit with world norms.

That would be a win win I think for the United States and China, but whether it happens or not, we shall see.

If China does reform up to world standards on IP and opening their markets, there are multiple Chinese companies that have been clobbered that may come of interest again for those gutsy enough and not minding Chinese companies to invest in.

That person with gutsiness is not me. But I know there are many here who are familiar with investing in Chinese companies like Huya or IQ (some of the newer names). Some of the older names have been big winners.

But like Saul, I am not going to invest in Chinese companies, at least not until China comes up to world standards legally and ethically (the latter aspect of course is sadly quite the low hurdle, but still a low hurdle is better than no hurdle).

Tinker

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You are now going to believe what the Chinese government say now?

The faking that had the largest repercussions has not come from Chinese corporations. The shenanigans that led to the financial meltdown in the US have been worst by orders of magnitude, and have the people and the corporations involved ever received any real penalty? Do some investing based on that?
Sadly you would not have done so badly. Wells Fargo also seemed reputable…

BIDU has been one of the best performing stocks of the past decade, and with the indubitable rise of China, it will have many more opportunities to continue to grow. I would say BIDU is a buy considering the long term.

Political risks? definitely in the shorter term but that will pass.

tj

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Political risks? definitely in the shorter term but that will pass.

Maybe. Take a look at this recent Wall Street Journal article.

Will China Cheat American Investors?
Beijing wants to bring home its big tech firms. U.S. shareholders may face undervalued buyouts.
By Jesse M. Fried and Matthew Schoenfeld
Dec. 13, 2018 6:45 p.m. ET

While Washington and Beijing battle over trade, a worrisome cross-border financial link has escaped scrutiny: Americans now collectively own most of the public equity of China’s biggest tech companies, including Alibaba, Baidu and Weibo. This relationship is strange (imagine if the Chinese owned most of Amazon, Facebook and Google). It’s also extremely risky, at least for American investors.

The relationship seemed like a win-win: U.S. investors got to own fast-growing companies, while China avoided destabilizing manias and panics. But the symbiosis began to break down as these hypergrowth companies matured. American investors became dispensable, and thus vulnerable to expropriation.

It started around 2014 with a wave of confiscatory “take private” transactions led by Chinese controlling shareholders. The objective was to delist U.S. shares at low buyout prices and later relist them in China at a much higher valuation…

https://www.wsj.com/articles/will-china-cheat-american-inves…

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Banjr,
That needs to be a link all of it’s own. That is exactly what happened with Yongye, the final Chinese company that I owned.

Andy

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Americans now collectively own most of the public equity of China’s biggest tech companies, including Alibaba, Baidu and Weibo. This relationship is strange (imagine if the Chinese owned most of Amazon, Facebook and Google). It’s also extremely risky, at least for American investors….

…the symbiosis began to break down as these hypergrowth companies matured. American investors became dispensable, and thus vulnerable to expropriation. It started around 2014 with a wave of confiscatory “take private” transactions led by Chinese controlling shareholders. The objective was to delist U.S. shares at low buyout prices and later relist them in China at a much higher valuation…

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Banjr,
That needs to be a link all of it’s own. That is exactly what happened with Yongye, the final Chinese company that I owned.
Andy

I agree, Banjr, you should give that a thread of its own. It’s scary.
Saul

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