By Perry Wu
How glorious for a Chinese company to be listed in the United States! You have access to all that money from hapless American investors. And you can be a company like 51job (JOBS) with nothing but a website, and if you meet the right investment banking people you gain access to all those tens of millions of American dollars.
But what the Lord giveth, the Lord taketh away.
If you haven't heard yet, 51job, the online Chinese job website, delivered a shocking report last week. The CEO, Rick Yan announced on an analyst conference call that there would be much less revenue in the fourth quarter than 51job had originally expected.
Yan reasoned that this was because Chinese Human Resources departments had somehow all used up their budgets earlier than expected. By December, according to Yan, these HR departments had essentially run out of money and had no more money to spend on 51job's classified ads.
Investors, very much unconvinced by Yan's reasoning, promptly kicked more than one-third of 51job's market value out of the air. The stock now trades at a shadow of its former high of over US$50.
And now it is high noon for the American lawyers. Within 48 hours, attorneys from firms all over America purporting to represent aggrieved investors began to issue press releases promising to punish 51job.
Like the famous "there's-gambling-going-on-here?" Casablanca line, the lawyers were saying, "You mean there's misrepresentation going on with Chinese Internet companies?"
Whenever a company's stock sharply declines, you can be sure that there will be many American lawyers on standby ready to pounce. But this is especially ridiculous. This is a Chinese Internet company we're talking about. And the market was valuing this company at more than $US 1 billion not too long ago.
Chinese Internet companies (and pretty much most non-American companies) listed in the United States have a great advantage over similar types of companies doing business in the US. You see, if you are a company like 51job, your stock is being bought and sold by people who know very little of the day-to-day dealings in China. Most of these investors have never walked past a Shanghai subway newspaper stand hawking 51job paper-based classifieds. Most of these investors have never sat in a Beijing mini-bus whose seat cushions are emblazoned with 51job's logo. And most investors know nothing about the daily Chinese-language online forum postings that say both good and bad things about 51job and its rivals like Zhaopin.com, Sohu.com (SOHU), Netease.com (NTES), and the hundreds of other smaller specialized job websites. American investors are in a bubble [sic].
So if you are an American investor, you rely on the reports issued by analysts in the ivory towers of Shanghai, Hong Kong, and Beijing. You read the news reports from foreign journalists based in China who often need translators to understand what is being said in press conferences and whose greatest desire is to get out of China as soon as possible so they can win a Pulitzer for war coverage in Afghanistan. You rely on the sanitized press releases issued via BusinessWire and PRNewswire on behalf of these listed firms. You are also relying, to a large extent, on the "laws of business" operating the same in China as they do in America. You are hoping that just because "GAAP" is flung around on a Chinese prospectus like a used napkin on the side of a hotpot table that you can get a firm grasp of a business in China.
China's business environment is constantly shifting. No news report, book, analyst's briefing, or conference call can give a more-than-half picture of the environment on the ground in China's different provinces.
Many of China's business sectors are booming. But with this boom comes rough seas and unexpected twists. If you are an investor in China's tech sector and you do not expect turbulence, go put your money under a mattress.
If poor accounting practices are found to blame in 51job's decline, than shame on them. But if their only fault was riding the wave, then shame on the investor.
About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.