Why China is so hungry for American investment funding

Shein desperately wants to raise money in the US.  

The cut-rate clothing maker, which arguably runs the largest network of Chinese sweatshops in the world, has privately notified the SEC that it wants to list on the New York Stock Exchange. And it is throwing money around in Washington to help win over China hawks. 

But why? You would think that, if a Chinese company has a successful business model, Chinese investors would be pouring money into it. After all, China has the second largest economy in the world, and its billionaires number second only to the United States.

So why can’t Chinese companies raise sufficient capital at home? Or, to put it another way, what do wealthy, well-connected Chinese know about their own companies — and government — that Americans don’t?

Quite a bit, actually.

They know that Chinese companies routinely exaggerate their profits to entice investors and that they keep multiple sets of books. Few, aside from the insiders who actually control the money flow, know how well — or poorly — a company is doing.

They also know that the Communist regime is an active partner in such deceits. One of the keys to a Chinese firm’s success depends upon enlisting corrupt officials as pricy patrons, whose sole job is to help protect the firm from the exactions of other corrupt officials and agencies.

They know that the regime has, for decades, blocked the kind of scrutiny that would reveal such fraudulent accounting practices. Millions of dollars in fines have been levied against Chinese accounting firms as a result.

But not only do these problems continue, they have been exacerbated by a recently passed anti-espionage law that may well be deployed against anyone who is overly curious about how well, or how poorly, Chinese companies are actually performing.

They also know from personal experience that the Chinese economy is in long-term trouble — with rising rates of unemployment, falling property values, an aging population, and unsustainable debt —despite the regime’s increasingly desperate efforts to punish those who question the party line.

When Moody’s, the international credit rating agency, downgraded China’s credit outlook to “negative” last month, it warned its employees in Beijing and Shanghai to work from home, presumably out of fear of retaliation.

The Chinese also know that the regime’s policies can turn on a dime. In July 2021, less than a week after the ride-hailing firm Didi raised $4.4 billion by listing on the New York Stock Exchange, Chinese regulators cracked down. The company’s share price dropped like a rock, falling from its high of $18 down to $1.50 in the weeks following. It has never recovered.

Most of all, Chinese investors understand one crucial fact: No one’s money or property is safe as long as the Chinese Communist Party is in power. 

This is especially true in the Xi Jinping era. Xi’s anti-corruption campaign has devoured the fortunes of millions of Chinese, party officials and businessmen alike. Billionaires like Jack Ma of Alibaba and Xu Jiayin of Evergrande are in internal exile or jail.

In fact, the scale of corruption in China is so large, and the scope of Xi’s campaign so broad that, as the economy falters, seizing the fortunes of corrupt officials alone has become a major source of government revenue. Chinese dissident journalist Jennifer Zeng estimates that the amount confiscated over the past 10 years may be as much as $30 trillion dollars, or roughly double the country’s annual GDP.

This anti-corruption campaign, which is really government expropriation of property by another name, shows no sign of losing steam. In fact, Xi has now green-lighted pursuing officials who retired over a decade ago.  

Not only that, he is reportedly demanding that senior Party officials in good standing turn over one-third of their wealth to the state.

So they flee, seeking a safe place to put their money, and their persons, beyond the reach of the Communist state. This is driving up real estate values in places like Tokyo, Melbourne, and Palm Beach, even as property values in China are collapsing.

Is it any wonder Chinese companies are having trouble raising capital in their own country?

It’s been said that communist revolutions always wind up devouring their own. But the Chinese Communist Party under Xi Jinping has taken this self-cannibalism to a new level.

Unless American investors want to be the main course in this feeding frenzy, they would be well advised to decline the invitation to dine.

Steven W. Mosher is the president of the Population Research Institute and the author of “Bully of Asia: Why China’s Dream is the New Threat to World Order.”