The obvious lesson to learn from the Euro-Asia Agricultural (Holdings) debacle is that not enough is known about the entrepreneurs emerging from the mainland's burgeoning private sector economy. While orchid grower Euro-Asia had some great numbers and an investment story to match, it was the intangibles of management quality and corporate governance that counted the most at the end of the day. The great numbers saw the stock price nearly double from its initial public offering price, only for the corporate governance issues to cause it to collapse by 86 per cent from the peak. With the private chips still relatively small and often well off the beaten path - Euro-Asia is based in Liaoning province on the North Korean border - even most institutional investors have in large part relied on analysts to do the due diligence legwork of kicking tyres and going round factories. Few, if any, picked up on the potential problems which could be visited on the listed company by the huge private interests of Euro-Asia chairman Yang Bin. It was actually media reports at the start of the year which highlighted Mr Yang's private interests, with analysts if anything rushing to the company's defence. Now, having been badly stung, many investors may choose to bin the so-called 'private chips' in the too-hard basket. Even if they were prepared to spend many man-hours in the field researching the background of a private chip, fund managers realise they could still be blindsided by a skeleton in the owner's closet. One fund manager who did the leg work on a private chip is pretty confident that the impressive operating margins and profit growth the company is reporting are real. However, he still has nightmares of waking up one morning and finding his morning newspaper splashing a story of the chairman being led away in handcuffs. While there is nothing to suggest that he has done anything wrong, it is simply that not enough is known about his background and his spectacular rise from obscurity to be completely confident that nothing untoward will happen. It is not just fund managers who are wary about businessmen. Mainland banks are too, according to one fund manager who picked that up from a meeting with China Merchants Bank, which still prefers to lend to state firms. If Chinese bankers are unsure about the background of entrepreneurs, what chance do investors have? The other more subtle point to be remembered is that China is still a long way from having a free-market economy and the rule of law. Entrepreneurs only operate with the blessing of the authorities and usually in areas which do not compete with state firms. Just as the state giveth, the state can taketh away. This is what Yang Rong found having turned around minibus-maker Brilliance China Automotive Holdings. As for Euro-Asia's Mr Yang, it is interesting to note that he was only arrested after his appointment to head a special economic zone in North Korea. Beijing was said to be miffed at not being consulted, with the arrest following days later. It would be easy to conclude that entrepreneurs are constantly walking a fine line between grudging acceptance and being enemies of the state. Those pointing to the lack of suitable investment vehicles to tap into China's exciting growth would once again seem to have been vindicated.