Social change

Chinese bankruptcy law has been being drafted for some time now. Another nail in the coffin for foriegn investors is the case mentioned in The Standard below (link to complete story) regarding a busines failure in Zhuhai leaving foriegn investors with nothing at all whilst Chinese investors were allowed to make off with the companies assets. Foreign investment for this business was about HK$7 billion (USD$850 million)....

``The Zhuhai Intermediate People's Court has permitted the Zhuhai government to seize assets which should be available for realization and distribution to all unsecured creditors,'' he says. ``It has ignored the provisional liquidators' requests for assistance and it has actively interfered in the provisional liquidators' attempts to obtain redress against the Zhuhai government. In simple terms, it has permitted the government's interests to be preferred to the interests of unsecured creditors.''

McDonald thinks the draft bankruptcy law falls short. ``The draft law might not have been of any assistance to the provisional liquidators in the Zhu Kuan collapse, because while Article 8 of the draft law expressly provides for the recognition of foreign liquidations, it only allows this if the overseas liquidation does not violate the interests and rights of [the government] and domestic creditors."

Ouch! Talk about biting the hand that feeds you! I am curious as to how much has been lost in unrecovered investments due to a lack of proper legal control over the dissemination of assets - my bet is that is is larger than most people think. The most depressing thing about Chinese company failure is the high frequancy of senior management "disapearances" just before a firm goes belly up,  what normally follows is the discovery of millions of dollars in government loans and investment has gone with the leader!

Opportunites for white collar crime are widespread and widely accepted as normal practice in many organizations - free money comes in and simply gets spread around by widespread abuse by the management team to fund that highly rated European and American education for the kids, beach houses, and luxury cars whilst the companies they are supposed to be "working" at lose more and more money. The common lack of accountability fueled by funding through Guanxi as opposed to merit or having a proper business case has created situations for companies here where the idea of company theft even being a "crime" has become blurry; the system has inadvertantly created a process that practically encourages abuse. The sad thing is that it is so easy to solve, and yet so obviously damaging to us all in China. The people who pay the most is not the investors - it is those who work and live here who pay in terms of increased cynicism (in particular the young) about what it means to be successful and are given example after example that says that if you are to be successful in business you have to be an asshole and a thief. This of course is not true for a great deal of Chinese companies, some of whom are doing great things - nonetheless, much more exposure is given to the bad guys than the good giving them collectively bad press.

Read more about the emergance of the Dark Side here....      

And you only need to look elsewhere in the world (erm...USA?) for corporate abuse on a truly world class scale...as Mr. Bernie Ebber so elegantly demonstrated as he screwed all the WorldCom investors to the wall, or of course the Bush / haliburton / Iraq menage a trois. This list is extensive.

To redress this darkness - I am coming up with a list of cool businesses in China; who they are, what they do and how they are doing it, adding some color to what is at the end of the day a brilliant country filled with some brilliant people that doing some great things. If your company is genuinely interesting, and has a leadership that is passionate and involved in achieving great things, let me know. Help me keep the faith because everyone out here needs it.

JOHN MAYNARD KEYNES
"The love of money as a possession-as distinguished from the love of money as a means to the enjoyments and realities of life-will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental diseases."

- Posted by James Nash - 10:08:40 AM - Comment? Rules: Criticize ideas? Yes. Criticize people for holding those ideas? No. []