Global Executives Admire Growth in China but Are Taking a Measured Approach to Conducting Business the Region
About half (51 percent) of global financial executives have little to no interest in accepting an investment from, or being acquired by, a Chinese company, according to a new survey of approximately 150 global financial consultants conducted by Merrill DataSite, the leading provider of virtual data room (VDR) solutions. Additionally, over one-third (34.2 percent) of respondents are unlikely to make an investment in, or acquire, a Chinese company in the next 12 – 18 months, and 24 percent remain undecided on this issue.
“Recent accounting scandals involving Chinese companies have become a growing concern on both sides of the Pacific. American businesses and investors are increasingly reticent about conducting business with and investing in both private and public Chinese companies,” noted Mitch Nussbaum, Partner and Chair of the Securities Practice Group at Loeb & Loeb, LLP, and a webinar panelist. “Similarly, Chinese companies are understandably concerned about reputational fallout and are carefully weighing the pros and cons of conducting business in the U.S. or listing on U.S. exchanges.”
“At least in the short term, the ‘shine’ of Chinese companies has certainly diminished. While some of the issues are real and need to be addressed, others are issues of perception and cultural difference,” commented Grant Miller, managing director and co-head of the Equity Capital Markets Group at Cowen & Company. “Currently, many Chinese companies are trading at a discount even though they are highly profitable and growing very rapidly.”
The polling results also revealed that global finance executives (59.3 percent) believe factors other than the Chinese government are to blame for the recent accounting scandals which have affected Chinese listed companies. The listed companies and their management teams got the vast majority of votes, with 48.1 percent holding them responsible for recent scandals.
“The reticence of the U.S. business community to invest with or in Chinese companies comes from fundamental cultural differences,” explains Jim Feltman, National Co-Leader of Litigation, Investigative & Intelligence Services at Mesirow Financial Consulting. “There are significant differences in cultural and business models between U.S. listed companies and their Chinese counterparts, which has recently come to a head and created a decline in investor interest in these companies.”
Respondents were divided over the industries in China that they consider the most susceptible to fraud. Financial services was, in their opinion, the most vulnerable, with 40.4 percent of the vote, followed by agriculture and manufacturing, and media, telecom and technology each garnering 19.8 percent of the vote.
Responses were drawn from survey questions posed during a worldwide webinar on October 5th, 2011 called, “China’s Red Flag: A discussion about what Chinese companies need to do to overcome issues surrounding transparency and credibility with the global investor community.” You can access the recorded session using this link: http://online.kcsa.com/mdatasite/webinar_arch.php?id=6.