As the dust settles from this big meeting, there are two major takeaways for the American financial and business audience.
First, the idea that one can invest money in a Chinese entity, expect that it will conform to generally accepted accounting principles, and return profits to its investors is pretty much gone. Every Chinese company is now subservient to the Communist Party. The Chinese tolerated a measure of ambiguity for decades–they had a socialist/Marxist government but their private sector companies such as Alibaba and Baidu and TenCent were hugely agressive and profitable. All that’s gone. So too is the idea that America’s Public Company Accounting Oversight Board can audit the way America’s auditing firms have audited Chinese companies listed on U.S. exchanges. That’s now too sensitive. Xi is too worried that Chinese companies might give away state secrets. Any sensible investor has to exit any Chinese equity.
Secondly, the fact that Xi has consolidated power around his rigid Marxist, nationalistic agenda means that American companies are going to come under greater pressure from Beijing at the same time that the Biden Administration is also ramping up pressure on the semiconductor industry to limit the sophistication of chips and chip-making equipment that it sells in China. Another implication is that there will be no “reform” of the sort that Treasury Secretary Hank Paulson ran around proclaiming. He and other Wall Street gurus sold the story that once Xi cleaned house, getting rid of corrupt comrades, he would “inevitably” embrace Western-style liberal reforms. All that’s gone, friends. American companies are going to have to undertake a complete rethink of their strategies in China. That’s already bad for the share price of folks such as Nvidia, Intel, Applied Materials, and others.
It’s a brand new game in China for American investors and business leaders.
