Budgeting for Fraud-A China Hustle Review- Scott Dennis April 2018
“Greed is the lack of confidence of one’s own ability to create.” V. Bonta
The documentary China Hustle is asking an important question: is fraud an essential part of capitalism and if not who will enforce the rules? Normal working people continue to ask this question in the light of the 2008 recession, stories of offshore accounts for the wealthy and almost monthly fines issued to bad actors within the American financial system such as Wells Fargo who may in fact consider fines for fraudulent behavior as the cost of business. It is a story that needs to be told because American workers presently have pension funds investing in Chinese assets that may well be fraudulent and ultimately worthless, hurting Main Street as well as Wall Street.
The film begins at the intersection of catastrophic losses during the great recession and the allure of China as a savior for investors looking to rebound. All of the key figures in the film are from the financial sector and the viewer can imagine how much doubt they must have had about the financial system as the great recession unfolded and how eager everyone was to look the other way at the panacea of earnings from Chinese companies. The way this manifested itself is through reverse mergers, the film gives a good overview of this legal loophole that was used to merge small Chinese companies with American shell companies with the intent of avoiding scrutiny on their way to being traded on U.S. exchanges. China Hustle claims that nearly 80% of Chinese companies being invested in by everyday people are reverse mergers and viewers will credit the filmmakers to alert us to this fact, it’s helpful for regular investors to look into these types of mergers as part of their own due diligence.
The filmmakers make an argument that Chinese and U.S. markets have a inherit problem working together that is cultural at its core. The Chinese business climate they claim is relationship based to the point of being feudal a reflection of a weak legal system. Although the viewer may be aghast at the willingness of Chinese companies to defraud American investors, it should be noted that China’s foray into the free market is still in its infancy. That said the ire should be saved for the lack of government oversight of these types of investments by SEC and the Congress. The most effective cinematic device is when director Jed Rothstein lingers on the faces in the interviews, they all look a little lost and disgusted by the situation. One of the investors that raised the alarm on China was Dan David; we see his frustration cataloged in the film as he attempts to get Washington’s attention regarding the dangerous exposure the American economy has to Chinese investments. The film is worth seeing for average people in order to remind them to do some homework when it comes to foreign investment, because the more opaque the opportunity is the more serious the risk.