Next time you are in Shenzhen and find yourself tempted by a nice juicy piece of steak, beware. It might actually be pork. China is a land where not everything is as it seems. My wife’s nephew, Jim, on a visit here from his home in Hong Kong, revealed that the Chinese have found a way of making cheap pork look like expensive beef. “They paint it”, he told us. “It tastes alright but it gives you a tummy ache.”
I’ll bet it does! Jim had a few more stories for us. The Chinese like the Swiss town of Interlaken. I don’t know whether it is the name they like or the pictures they have seen in magazines. But anyway, they like Interlaken.
The trouble is that Interlaken is a long way from China, and to get there Chinese people need not only the money but also permission to travel. For most Chinese that puts Interlaken out of reach.
So the Chinese have brought Interlaken to China! Somewhere in the huge country there are some hills with a passing resemblance to the Alpine backdrop to Interlaken, and here a replica of that Swiss town is under construction.
How to spot mainland Chinese in Hong Kong
China has built scores of replicas of international tourist attractions, from the Eiffel Tower, to the Statue of Liberty. If you cannot take the Chinese to see the world, you can take the world to China. The Chinese have a passion for western values and symbols of luxury.
Those able and permitted to visit Hong Kong stock up on luxury goods because they cost more on the mainland where western firms jack up their prices. The latest firm to have its shares traded on the Hong Kong stock market has come up with a really neat business idea – it trades second hand designer handbags!
There is antagonism between the mainland Chinese and those from Hong Kong. There always has been. When I worked in Hong Kong I remember a sophisticated Hong Kong colleague describing the mainland variety as “heathens”. I was a little shocked. But my wife’s nephew displayed a similar attitude. I asked him if the mainland Chinese in Hong Kong are recognisable. “Yes”, said Jim. “They’re the ones who barge their way to the front of the queue in LVMH. And they’re the ones who spit…”. The antagonism obviously runs deep.
If they weren’t unpopular enough, mainland Chinese are also driving up Hong Kong property prices. Any mainland Chinese that has been permitted to live in Hong Kong does so on the condition that he invested HK$6m (about £500,000) in Hong Kong’s property market. Lo and behold the asking price of mid-standard properties suddenly vaulted to $HK6m!
Fake handbags are one thing – fake balance sheets are another
Back to Chinese deceptions. Jim is an accountant, working with one of the big four firms. He warned me against investing in any Chinese company, not that I need much dissuasion.
Years ago I remember an investment prospectus to attract finance for the building of a new motorway on mainland China. The cover had a shiny photo of the proposed highway – with a sign above it saying “Luton 50 miles”. A number of Chinese companies have had their shares listed on the London stock market and with few exceptions they have failed to deliver.
Stock markets around the world want to attract Chinese companies, and candidates must go through the motions of producing prospectuses complete with accountant’s Reports. The problem is that the Chinese are not used to such rules and regulations. Their traditional attitude is that rules are not necessarily there to be obeyed, but to be dodged. Accountants are required to delve into the financial workings of any Chinese company that wants to go public, but with a limited time and budget, they can only look under so many stones.
The results are painful for investors. Shares in Sino-Forest, “a leading commercial forest plantation operator in China” quoted on the Toronto Stock Exchange, have collapsed following allegations that it does not actually own the trees that it claims.
It’s easy to be fooled – John Paulson, one of the world’s richest hedge fund managers, lost $800m on Sino Forest. Jim also told me about a Chinese company that sells pork. He visited its farm to take a look at the livestock. There weren’t any pigs.
It doesn’t inspire confidence does it? Jim goes to China regularly, but not to shop. “For all I know the things I might buy are fakes”, he laughed. Investors in Chinese companies should consider that warning before they part with their money.
• This article is taken from Tom Bulford’s free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
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