Why Would Anyone Invest in China?

Francine McKenna writes that Deloitte Shanghai refuses to turn over workpapers and documents relevant to the SEC in their investigation of Longtop.

“Chinese law prohibits Deloitte China from providing the requested documents directly to a foreign regulator,” said spokesperson Lauren Mistretta. “Deloitte China is caught in the middle of conflicting demands by two government regulators, and DTTL hopes that this matter will be resolved in a timely and sensible matter.” McKenna concludes:

The S.E.C. must consider how much longer they will allow companies to list in the U.S. if they honestly and clearly tell you they are out of the reach of U.S. courts when something goes wrong.

The PCAOB must consider how much longer they will allow foreign-based audit firms to produce audit opinions if the PCAOB can not inspect them and if home countries refuse to cooperate with U.S. regulators.

U.S. courts must consider how seriously to take claims by global audit firms that they were “duped” by foreign fraudsters when they willingly set up shop, trumpet expertise, plan huge growth and hiring, take shareholder’s fees for auditing shams, and then hide behind Chinese Walls to evade responsibility.

U.S. investors must accept the consequences for trusting their money to those that laugh loudly at attempts to hold them accountable. (Deloitte Hides From S.E.C. Behind Chinese Wall Over Longtop, Forbes, 9/9/2011)

I you’re investing there, check out FT’s How Best to Invest in China. I have a small amount invested in Chinese companies but would invest more if there were stronger corporate mechanisms protecting shareowners. Right now, there are better opportunities elsewhere, even with China’s amazing growth.

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