Understanding China, One Blog at a Time

An American in China

My Crooked Chinese Friend and Why I Will not Buy Chinese Stocks

Posted by w_thames_the_d on February 20, 2011


I have a Chinese friend who is an entrepreneur. The guy is rich and is a pretty likeable sort. He started a few companies and then sold them, (he and his wife’s parents are both ‘officials’ as well). When a friend and I started a company, he said he could get us some funding. I said that we were just starting out and had few sales, he told me not to worry, and smiled.
I never went for the funding from this guy, we did something else, but I then asked his number two about my friends companies.

As we explored the financials of one of his current three businesses, I was surprised to find out that although the thing had been bleeding cash for the past three years, it was still able to get funding in China. I asked how they could continue to get cash if they had a low level of sales. The guy laughed and explained that my friend was one of the owners of the company. And all owners also had other businesses, so to make this company seem healthier, one of the other co-owners would have one of the managers of one of his other companies sign an ‘allegedly’ bogus sales contract with the failing firm.

I was taken aback. I said that in essence was a big scam and his company should have gone broke. He said that due to the way Chinese companies are run, it’s always like this.
You may discount this as a small example of China and disregard the post and tTo me it does not matter, as I have decent idea of what is happening here. The owner of that company is now peddling a web ‘security’ package in Australia and/or the UK. Knowing what I do about China, I’d never buy stock here nor in what my friend owns. But I do know that if I need to get cash for any of my future endeavors, he is a good resource.

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