Investing in Chinese stocks

I thought I should put this on a new thread as it isn’t really about investing in Alibaba and Shop, but about investing in Chinese stocks.

Considering that two or three years ago, when Yahoo was a 40% owner of Alibaba, the CEO gave himself the most rapidly growing subsidiary as a present, and there was nothing Yahoo could do (even though they were a 40% owner), what in the world makes you think they can’t do the same thing to you? Just wondering.

My own experience in Chinese stocks listed in the US (most recommended by MF Global Gains, which is now closed down after the disaster of Chinese stocks) was that they were simply devices to enrich the CEO and his family, and stockholders were just considered suckers, and sources of the funds to enrich the principals. Eleven of thirteen of these companies, as I remember turned out to be fraudulent (bought nonexistent companies from CEO’s cousin for $25 million of stockholder money, didn’t have the factories and facilities they said they were building, but they just kept the money, etc.) All collapsed in price, often to pennies a share. This included several companies that the MF Global Gains leaders visited, and had glowing reports of how wonderful and honest the corporate officers seemed to be.

And as someone wrote earlier, you don’t really buy a share of the company, you just buy a piece of paper.

Here is a piece of an article from China Law Blog, China Law for Businesses, dated in March of this year, written by Dan Harris and entitled Buying Stock in China’s Publicly Traded Companies: Good Luck With That!…

On the author: Dan Harris
Dan Harris is internationally regarded as a leading authority on legal matters related to doing business in China and in other emerging economies in Asia. Forbes Magazine, Business Week, Fortune Magazine, BBC News, The Wall Street Journal, The Washington Post, The Economist, CNBC, The New York Times, and many other major media players, have looked to him for his perspective on international law issues.

I am a China lawyer.

That means I am not a China expert, not a China investment advisor and not a China stock analyst. So when I tell you that I have never invested in a publicly traded Chinese company and I cannot see myself ever investing in a publicly traded Chinese company, you should (and you probably will) completely ignore me and not change your behavior in any respect.

But I am going to ramble about China stocks in this post anyway.

What has spurred this post (and my rambling) is having just read a post on the always superb China Accounting Blog, by Paul Gillis, PhD/CPA Professor at Peking University’s Guanghua School of Management and the person who knows more about China accounting practices than pretty much anybody… He points out that the US SEC does a great job protecting Chinese investors from getting ripped off in… investor scams but pretty much nothing to protect US investors in Chinese stocks:…

…the only CEO to be jailed for defrauding US investors was Dickson Lee of L&L Energy. Lee, however, was a US citizen and was arrested on US soil, so Chinese authorities could not protect him…

…Perhaps the most egregious case was Ming Zhao of Puda Coal, who faces a $250 million judgment from the SEC for ripping off U.S. shareholders. But Chinese authorities have not helped the SEC to enforce the judgment, and instead elevated Ming Zhao to the Eleventh Standing Committee of the Chinese People’s Consultative Congress. I guess he is viewed as a model comrade…

…Gillis sees Chinese regulators as “playing US regulators for fools. They are protecting Chinese fraudsters and thereby creating a safe harbor for those who wish to commit fraud against US investors. At the same time, they welcome application of the rule of law in the US to protect Chinese investors. US regulators are letting them have their cake and eat it too…”

…Gillis then discusses how the “SEC has been unable to bring Chinese fraudsters to justice; as long as they stay in China they remain outside of the grasp of US regulators. China has shown no interest in prosecuting Chinese fraudsters for crimes committed in China that are clearly crimes in China, apparently on the basis that victims of the crimes were not Chinese…”

…It is very easy for Chinese companies to engage in stock fraud without repercussions. Our China attorneys see this all the time, as hardly a month goes by without someone contacting us to see if we might be interested in pursuing a stock fraud claim against XYZ Chinese company. The problem is that unless XYZ is still operating in the US…these just do not tend to make for great cases, because there is no money pot at the end of the proceedings.

So if you are buying (most) Chinese stocks, you are on your own. In other words, caveat friggin emptor baby. And that (plus the fact that we rarely see a Chinese company with fewer than three sets of books) is why I will not buy Chinese company stocks.

A word to the wise.



I’ve posted this before but if you want to rake over the gory details again, here you go……………………………

Yes it opens your eyes and will make you take a Saul like position on blacklisting Chinese investments full stop.

As mentioned I look to 3 points to somewhat de-risk my China investments - look at companies where

  1. I can genuinely trust the owner/manager (YZJ or NOAH),
  2. that have enough western counter party ties (CTRP)
  3. are so big that reputationally not even PRC would want the demerit in corporate misdemeanors - which is where I would place BABA.



I’ve posted this before but if you want to rake over the gory details again, here you go… Yes it opens your eyes and will make you take a Saul like position on blacklisting Chinese investments full stop.

Wow, Ant, what an incredible collection of frauds and failures, all tabulated together and most having lost 95% to 100% of their value, and a great number delisted.

You are braver than me if you still want to invest in a Chinese company. Especially since, last I was aware, they were forbidden to pay cash dividends or otherwise reward foreign investors in any way that took money out of China.



You are braver than me if you still want to invest in a Chinese company.

I do it selectively and I only invest in ones listed in the US or HK or Singapore - never in China and especially never in UK! It probably helps that I am based in Asia and visit China 6x/year so have a finger on the pulse and the opportunities. Chinese company exposure is probably less than 10% of my stock portfolio.

Especially since, last I was aware, they were forbidden to pay cash dividends or otherwise reward foreign investors in any way that took money out of China.

Unfortunately that really doesn’t have much to do with being Chinese or dividend investing.

Any companies earning in China have their money trapped there. So your average all American or any other multinational - take Skechers for example, will have its China revenues stuck there.

Furthermore honestly I don’t think Americans can really criticize on the perils of overseas money entrapment when they have the most significant earnings repatriation roadblocks in the world which is why their companies are continuously wanting to tax invert. China could be a free for all by the US corps still wouldn’t bring their money home and not because of China.

Anyhow I didn’t think you were interested in dividends - you’re the King of capital gains growth!



I recently reviewed a Chinese company that I believe checks all of the boxes in Saul’s investment philosophy except one: Its a Chinese company
that designs, manufactures and markets solar stuff. It also operates in the solar power generation niche and is rapidly growing.

The company is JinkoSolar (JKS) and its EPS Growth ttm vs prior ttm is 40% while its EPS Growth last QTR vs the same qtr 2015 was 457%. All this and with a current PE of somewhere around 5.

So…it seemed like a reasonable investment to me with two exceptions: 1) The Saul factor. 2) My wife.

Saul’s success and philosophy speaks for itself. So there is that warning bell ringing in the background of my investing in JinkoSolar.

Then there is the wife. My wife is an Architect from Hong Kong. She has family there, we visit often, and we take a lot of side trips into China. If there was ever a country that could use clean, renewable power its China - hands down. When I mentioned that I wanted to add Jinko to our investment portfolio she laughed, told me never to trust any Chinese company and threatened to strangle me in my sleep with a telephone cord. (I think she was kidding but not altogether sure).

That was the end of my researching Chinese companies.



I like that you have rules to your investing in China. That will definitely help you mitigate any losses.


My wife is from Shanghai and she doesn’t care what invest in as long as I beat the market indices and spend very little.

Might I suggest an ETF as a compromise? ISHARES CHINA LARGECAP, (FXI) is up 31.3% since February 8th. My only regret, as is so often the case, is that I didn’t invest more at the time.