One example of why an investment in China MAY not be a good idea

[Randy W]

I was invested in Mathews China Fund (MCHFX) from 2005 to 2011, but I'm not even in that anymore

 

 

In China, a Building Frenzy’s Fault Lines

http://static01.nyt.com/images/2015/03/15/business/15-KAISA-JP1/15-KAISA-JP1-articleLarge.jpg

 

the Sinopec Tower, in Guangzhou, China. The tower is one of Kaisa’s flagship properties. Credit The New York Times

 

Real estate prices were soaring. Western banks, hedge funds, private equity firms and other investors wanted a piece of the action.

Billions poured into Chinese real estate, and big foreign financial firms hunted for the next hit — the small bet that investors could ride to great heights. . . .

With the $450 million raised in the initial public offering, Kaisa embarked on an aggressive expansion into 20 more cities. It formed a partnership with Marriott hotels and announced plans to build one of the world’s tallest buildings. Kaisa shares skyrocketed, helping lift the fortunes of its Western patrons, including the Carlyle Group, an American private equity firm.

Then came the fall.

. . .

Kaisa is now pushing such bondholders to accept roughly 50 percent of the value of their holdings, or risk getting pennies on the dollar if the company goes bankrupt.

“We’ve seen problems with other developers, but nothing like this,” said Peter Churchouse, a property consultant in Hong Kong and a former executive with Morgan Stanley. “There’s a deep mystery here.”

The Kaisa story offers an unusual window into what can go wrong when investors rush headlong into China. In a country where the profits have been so tempting, the warning signs — the complex corporate structures, the opaque deals, the political influence — often go unheeded. Investors, even sophisticated investors, either miss them or ignore them.

The Chinese authorities have offered no reason for their decision to freeze sales at Kaisa properties. And the company’s executives are not talking. But there were hints. Reports of bribery. Insider deals involving more than a dozen of the chairman’s relatives. An increasingly complex network of affiliated companies. And a land development project tied to a former Chinese security chief and Politburo member, Zhou Yongkang, who was arrested and expelled from the Communist Party last year in one of the biggest graft cases in decades.

 

 

[Doug]

This is all of what I have been thinking from my visits there. Vacancies, yet many tall buildings going up.

[tsap seui]

[Randy W]

This seems like a good article to read if you're still thinking about investing in China - from Zack's

 

China Faces Near-Term Hurdles Before GDP Beats US: 3 Funds to Sell

 

MCHFX is one of the three