Over the past three decades, I have visited China and Chinese territories more than 10 times.
But the last time I visited, just a couple of years ago, I noticed a change.
A decidedly negative change.
Let me back up a bit…
I have been following China and Chinese companies since 1993. I was even there for the handover of Hong Kong to the Chinese in July 1997.
But my first trip was at the invitation of a Chinese steel company based in Chengdu.
While my plane circled the airport to land, I noticed something unusual: There were hardly any lights on the ground. At first, I was concerned that we were losing altitude and there was really no airport in sight.
When we finally landed and I made my way to the Jin Jiang Hotel, I realized why.
There were no streetlights. In fact, there were no other cars either. The only light I saw came from a billboard advertising a Jeep.
Funny, because at the time, there were very few cars in the city at all.
The next morning, as we headed to the factory, our car was again the only one on the road. But there were bicycles and riders – thousands of them, as far as the eye could see. The industrialization of China was just beginning.
Of course, on my most recent trip to the region, there were hardly any bikes… but there were lots of Volkswagens, plenty of GM cars and quite a few Bentleys as well.
Meeting With “Management”
Let’s go back to the steel factory and the most important lesson it taught me – a lesson that still holds true today. We were given a tour of the factory by “management,” who explained how their processes and material costs made them a low-cost producer. I still have the bamboo hard hat!
Pictured above: My Chinese steel factory bamboo hard hat.
After an hour or so of walking around, we were escorted to lunch, where one of the city’s council members was the featured speaker.
The first thing I noticed was the Rolex he was wearing on his wrist (at the time, fakes were not the norm).
It was an interesting sight, as the average wage was something south of $5 per day. So that watch represented about two years’ salary for the average worker.
The Truth Reveals Itself
That evening, we were treated to the main event: a cocktail party along with some unmentionable “extras.” They passed around their version of a local hooch called “woolongye” (or something that sounded like that).
I’m not a big drinker, especially not in places I am unfamiliar with. But others were getting rowdy, and tongues started wagging. Management started to get very loose… and then it slipped.
The steel mill, which was a company listed on the over-the-counter exchange network, was really owned by the municipality. It was neither private nor public.
It was actually just a vehicle for local government officials to cash in on selling stock in the U.S. under the guise of a legitimate public company.
Even the accountants and auditors were complicit. Needless to say, it wasn’t a company I recommended… and a few months later, the shares were delisted as the fraud was discovered.
Since that visit, I have always been wary of investing in Chinese companies as anything but pure speculations.
They are not real companies but wards of the Chinese Communist Party (CCP). That’s who truly controls the success or failure of the companies and their listed shares.
Just look at the Alibaba (NYSE: BABA) fiasco if you want proof. The company and founder were getting too rich, so the CCP stepped in and chopped both of them down, causing hundreds of billions of dollars in investor losses.
My Most Recent Visit
On my most recent visit to China, I was treated with outright hostility – starting with being required to submit a letter, an affidavit of sorts, that I would not be writing anything that would come across as derogatory.
I was hassled at immigration and spent at least five hours at the airport trying to clear the entry process. I reached my hotel at 2 a.m. after finally convincing a sketchy driver to give me a ride because everything else was shut down.
The trip to the hotel was pretty spectacular. As I rode through Shanghai, the city was lit up like a Christmas tree.
The roads were great, the hotel was outstanding, and the cars parked in the hotel courtyard were nothing but the highest-end Rolls-Royces, Bentleys… and even a Lamborghini. The Mercedes didn’t qualify for primo parking.
Pictured above: A black Rolls-Royce on the street during one of my China visits.
I went shopping at my favorite tech markets the next day. I used to be able to walk in and wheel and deal…
Not this time. Once I opened my mouth and my American accent was revealed, service was nonexistent. In fact, I was thrown out of a store.
That was pretty much how the whole trip went. As an American, I wasn’t welcomed.
Fast-Forward to Today
China is now on the verge of outpacing the U.S. on many fronts.
Its navy is bigger, it’s in a position to control the most precious resource on the planet, it can even spy on our children without penalty…
And it is well on its way to amassing massive caches of resources from Africa to South America. It makes no secret of its hostility toward the United States.
Yet we seem to love investing in Chinese companies, even though they are controlled by the CCP. China sends a spy balloon over our country, and we laugh and argue about which state it flew over.
But the worst of this is that we are on track to become China’s new conquest if we don’t pay attention to the biggest threat we are facing.