Are Chinese companies that choose a U.S-listing, as a group, ‘dodgy’?
The collapse of Luckin Coffee and the kind of investigative journalism that turned into what Forbes called “The Most Important Film of 2018”, The China Hustle (watch it here if you haven’t seen it China Hustle), provides ample grist for a mill that concludes they are.
With the ‘G’ in ESG being the least talked about quality criteria for newly woke investors the paper today from Chao Xi and Yurong Huang of the Chinese University in Hong Kong adds usefully to that discussion.
Using the fraud-related Luckin collapse as a lens to look at the entire (149-NASDAQ, 62-NYSE) U.S.-listed China universe the researchers arrive at two interesting conclusions.
First, there is a notable lack of Board Independence among U.S.-listed Chinese companies; but most of this can be explained by the fact that the majority of these companies are small and that goes with the territory.
Second, if you’d had your wits about you Luckin’s Board and Board sub-Committees’ composition represented massive red-flags from the get-go. Their eight person Main Board had only two independent members, the Audit Committee had only one and the Compensation Committee had none at all (!). A stark contrast to even U.S.-listed Chinese peers.
The researchers conclude “Overall, our research does not lend much support to the view that the U.S.-listed Chinese firms, in particular the NASAQ-listed Chinese firms, are a minefield in respect of board governance.”
I feel compelled to throw my own two-pennyworth in here as a multi-decade-experienced practitioner. The paper may be correct in terms of the scope of its analysis but it only provides a narrow answer to the question at the top of this note.
I won’t go directly to that question either (at least not here) but feel I should point out I have never owned or recommended a Chinese stock listed on a U.S. exchange nor am I likely to do either in the foreseeable future.
The paper, with a useful list at the end of the U.S.-listed China universe, is available via this link US Listed China – A Minefield?.
Happy Sunday.
[A related aside. Didi Chuxing is planning a U.S. listing. If you’re tempted make sure you’ve read the excellent piece on the subject that appeared at Forbes last week (follow this link for the article Didi-Forbes) before placing your order.]