Markets Want to Lock out Chinese Stocks
There are companies from all over the world seeking to list on America’s most liquid and lively exchanges, and that’s a good thing. It puts international exposure on the doorstep of most investors, and helps foreign companies gain access to financing to grow.
These are still investments made in far away lands, however; in people we’ll never meet; in different social worlds that function as fully as those we ourselves live in. It’s usually fine, we brush it off, but a string of high-profile frauds recently has broken transnational trust.
We’re talking about the China Hustle. The country’s ‘rule of law’ still suits rural rather than urban living, and it’s hurting unsuspecting investors from overseas. The headline financial trickeries all seem to come from China.
To protect shareholders at home, the Senate has passed legislation that will force foreign firms on American stock exchanges to follow American audit standards. It’s fair enough. The bill is widely supported entering the House of Representatives for passing, and this is the perfect president to sign it into law. He’s super keen to put pen to paper on this one.
It isn’t a light slap on the wrist or a puffy press piece; it’s a gombastomp! Proper auditing could reveal dozens more fabrications, so these developments are causing a major sell-off in Chinese stocks as companies get put the test. If the likes of Alibaba and Tencent prove themselves to be the ‘good ones,’ their shares will be worth a multiple more, however.
The legislation doesn’t automatically expel Chinese stocks from American stock exchanges, as some hoped, but it does give the Securities and Exchange Commission (SEC) more power. There are famous activist vigilantes like Muddy Waters Research that name, shame, and short foreign frauds before they happen. This legislation is thanks to their pounding on the table.
The threat of ‘others’ running the second-biggest economy in the world and a strong sense of domestic declinism have no doubt helped this bill pass, but it’s for the greater good. Chinese culture rewards ‘winning by cheating;’ Luckin Coffee was only ‘wrong’ because it got caught, so we’re witnessing a real game-changer here.
Western investors can play a Chinese game with American rules!
