Incentives For Fraud At Chinese Companies

Chinese managers have incentives to deceive foreign investors of Chinese companies as long as the Chinese court system and local authorities continue to protect Chinese swindlers from foreign victims. So they have massive incentives to deceive their foreign shareholders. The Chinese managers are people that are not being punished for their bad behaviour, so they will continue doing so. Because of that, any foreign investor will be better off avoiding Chinese companies incorporated outside of mainland China, ie, Cayman Islands, Bermuda, Singapore, Delaware or even Hong Kong. If the Bermuda-incorporated Chinese company listed on Nasdaq has commited fraud, where will the foreign investor start his lawsuit against the company, in Bermuda, the US or China? If he sues in the US and Bermuda and wins, the courts will not be able to enforce their judgments in China. And even if he sues in China, it is highly unlikely that he will win.

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