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MY China Hearsay Post

China PE

China Hearsay has a great post on private equity and investment bankers in China. The post is entitled, Great Recession Watch — Living With Mendacity in China [link no longer exists].

Why am I certain it is a great post? Because I wrote that same post, with that exact same conversation, IN MY HEAD, many times. I am, however, certain Stan Abrams did not pry this post from my head because I am too low-brow to quote Tennessee Williams; In my head, I quoted from Bob Dylan’s Sweetheart Like You.

Essentially, Stan’s post talks about investment bankers/venture capitalists coming to him to be their China lawyer on “deals” in China without having any clue whether the substance or structure of the deals are even legally possible in China. Oftentimes, they came to him after having spent huge amounts of time and money on “the deal” already:

Over the past few years, as China became a red-hot market, everyone wanted to get in on the game. Throw some money together and get some folks to buy Chinese companies. Sounds like a good idea. But some of those people working for these funds (PE in particular) had little industry-specific experience and no idea about some of the legal hurdles involved. I don’t blame them for the latter, but it did piss me off to no end when they belittled the contribution of lawyers and only got us involved after they pissed away hundreds of thousands of dollars evaluating projects that were structurally impossible to begin with.

It is a must read post.

3 responses to “MY China Hearsay Post”

  1. I bet in many of these cases the local party omits to tell the foreign investor that the deal is illegal if they think they can get the money first.
    Given the number of foreign investment funds that hire returnees armed with MBAs (sometimes known as Major Bulls*#t Artists) solely because they look Chinese and can speak Chinese, and then assumes that these people know how to do business here, I would expect that many deals will go sour.

  2. To be sure there are shysters galore in China and you can find a scam without even looking.
    But useful to the discussion is the fact that people just plain don’t know what is and is not legal. It’s a system that, as part of its checks and balances, intentionally includes overlapping and conflicting authority among government entities.
    That is why a plastic surgeon invited to China by one department can also be arrested at the airport for piracy and drug smuggling, kept in a windowless cell, and forced to sign a confession by another department.
    Locally, provincially, officials and companies often enough literally don’t know whether something they propose is legal or not. Asking an official whether he has the authority to grant a license, etc., will most often result in the answer, “yes, for $x invested in Bank of Y and the appropriate fees”. They sure won’t tell you they don’t know.

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