A year into trade war, Wall Street is the latest front for US suspicions about China
- Fraudulent practices and transparency issues underscore markets’ long-standing fears about a country that lacks commitment to the rule of law
- US Securities and Exchange Commission leads cries for vigilance as investors become more exposed to Chinese stocks
Chinese wealth manager Jupai Holdings started trading on the New York Stock Exchange in July 2015. A large firm investing money for well-off Chinese, Jupai was touted as a growth story for US investors – a way to tap into the budding but fast-growing Chinese financial market.
It did not turn out as promised. Just two years later, the Shanghai firm was sued by Ninespot, a California-based video live streaming start-up, for fraud and breach of contract.
According to court documents, Jupai failed to execute on a signed contract to invest US$18 million in Ninespot. The start-up was forced to close shop and decided to take Jupai, which manages US$8 billion in assets, to court.
Since then, Jupai’s stock began a precipitous slide, dropping more than 90 per cent in two years, to US$2.23 a share this month. In that period, US investors collectively lost nearly US$900 million.
Jupai and Ninespot did not respond to requests seeking comment, and such disputes – where the investing party is sued for walking away from its legal commitment – are clearly not limited to Chinese investors or businesses. But the case underscores a long-standing worry on Wall Street about companies from a country with no real history of commitment to the rule of law.
Even as China’s economy expands, US investors’ cry for vigilance concerning Chinese firms has grown louder – with Wall Street the latest front seeing US disengagement from China. Since the start of the trade war a year ago, Washington and Beijing’s battle over tariffs has already spurred the two countries to decouple on trade, technology and cultural and research exchanges.