The Possible Bright Spot in China’s Anti-Corruption Crackdown

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By Jacob Maslow

Chinese Yuan
Chinese Yuan

As I have written earlier, a decent chunk of the recent ‘millionaire exodus’ from China to the US and points beyond might unleash a badly-timed wave of capital flight out of China. Talk about ill-timed. While the Chinese GDP is still growing, it is doing so at a much lower rate than before. Indeed, if China’s GDP meets global analysts’ expectations, last quarter’s GDP numbers will the lowest rate of growth for the Chinese economy in 24 years. It is unthinkable to assume that such lower than normal economic performance wasn’t affected by the chaos, confusion, and uncertainty triggered by the current corruption crackdowns happening in China. Considering the fact that China has always been one of the most reliable ‘confidence anchors’ in the global economy as more developed countries stagger, China’s softness gives investors a lot to worry about when it is becoming apparently clear that there are less and less solid places to invest due to economic softness everywhere else-except maybe the already overvalued US markets.

With all this playing out, it appears that the current anti-corruption drive in China might yield some very positive results for investors. As the corruption crackdown has shifted focus to criminal wrongdoing by corporate heads of state owned or controlled corporations who are also party members, it is becoming increasingly clear that the Chinese government might introduce ‘mixed’ ownership to these enterprises. In a bid to boost the level of third-party oversight to step corporate corruption as well as reduce state losses due to corrupt state corporations, private investors or portfolio institutional investors might be brought in. If this happens, this can produce a win-win for the government and everyone involved. Foreign investors in portfolio institutional investment vehicles can buy into state controlled companies while the higher level of scrutiny might boost these companies’ overall performance. At the very least, it helps the central government offload some of its oversight hassles to the private sector.
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