This not an exclusive China issue.
True, Ant, but somehow the frauds were so egregious in the Chinese companies. Here is an example I remember from the companies that MF Global Gains got me in:
Company ABC took $25 million in profits to acquire a little company, XYZ, that had developed some minor but useful product. It turns out that XYZ was privately owned by one owner. This owner turned out later to be the cousin of the CEO of ABC. Upon tracing the phone number of XYZ, it turns out that XYZ had no building or offices or labs, but was just a single office located WITHIN the acquiring company ABC, with one desk and a telephone and a secretary. There was no company XYZ. The CEO of ABC was just giving his cousin a gift of $25 million of stockholders money. The product had been developed by ABC. It was just used as an excuse to enrich the cousin, who had nothing to do with its development. This was considered quite normal in Chinese culture, which, as you pointed out in an earlier post, is just the way it is in China.
Granted that China is so big that you can make a lot of money anyway if you get lucky (ie if ABC is growing fast enough that it doesn’t matter that the CEO is giving $25 million to his cousin, and who knows how much to himself?) But I figure why fool with it?
Saul