Shadowy figures

A few years ago, investment bankers regarded Beijing and Shanghai as backwater hardship postings where the main business was helping Chinese companies list on overseas stock markets.
 
Today, China-based bankers receive calls every day from colleagues across the planet asking them to line up deep-pocketed Chinese investors to buy whatever company or asset they happen to be hawking. The common perception is that filthy rich Chinese tycoons are just itching to overpay for all sorts of trophy assets.
 
But the fact is, Chinese offshore direct investment is still in its infancy and the investments that do happen are almost all made by big state-owned resources companies, or by entities like China Investment Corp (CIC), the country’s main sovereign wealth fund.
 
Approach with caution
 
Of course, you’d never learn that from the global press, where shadowy Chinese investors always seem to be planning a bid for any large company or asset that happens to be for sale. Be wary of what you read. Many of the stories about secretive Chinese firms hoping to swoop in and buy up a company are nothing more than plants.
 
Chinese executives complain that their organizations are regularly named as bidders in deals they have never heard of or are not involved with. They say unscrupulous investment bankers often raise the prospect of a shadowy Chinese bidder in order to push up the price of the asset they’re selling, or apply pressure to potential buyers already in negotiations. In some cases, bankers will do no more than ask a potential Chinese investor for a meeting before they start whispering to pet reporters.
 
Let me give you a couple of examples where an obviously delusional Chinese bid or bidder has been taken seriously just because he or she happens to be from the newly wealthy Middle Kingdom.
 
In mid-July Lu Qiang, founder of an outlet mall on the outskirts of Shanghai, told a newspaper he had bought 13% of Italian fashion house Prada and was planning to buy another 20% to become its single largest shareholder.
 
Lu made headlines around the world before Prada set the record straight with a statement pointing out the company is not listed, and 95% of its shares are held by the Prada family. The remaining 5% is controlled by an Italian bank, and Prada said it has never had anything to do with Lu or his company, Foxtown China.
 
Foxtown, by the way, was found guilty by a Shanghai court a few years ago of impersonating a Swiss company with the same name.
 
While Lu’s claims were discredited quite swiftly, the same cannot be said for QSL Sports. The obscure Hong Kong-registered sports marketing firm emerged from nowhere to become frontrunner to buy Liverpool Football Club, thanks not only to a credulous UK media but also to many people directly involved in the deal who were willing to take QSL seriously.
 
Throughout all this fuss, no one, it seemed, had thought to call the company itself. In fact, QSL’s advertised offices in Hong Kong do not exist and its Beijing operations employ just a dozen people working mostly on promoting baseball, a sport that barely exists in China.
 
The fact that QSL’s founder and sole shareholder, Kenny Huang, had previously falsely claimed to own a stake in the Cleveland Cavaliers basketball team also didn’t raise alarm bells.
 
Ludicrous claims
 
Huang’s boosters even told the press that CIC was his financial backer – a ludicrous claim considering CIC’s aversion to any kind of high-profile acquisition. Breaking its customary silence on deal rumors, the sovereign wealth fund publicly denied the claim, but the British press refused to accept the truth.
 
Perhaps the UK media were deluded by the dream of wealthy Chinese owners lavishing the ailing club with enough money to buy any player it wanted – or maybe puns like "you’ll never wok alone" (the Daily Mirror) were just too irresistible for editors to ask reporters for any due diligence.
 
In the end, Huang never made a formal bid because he never had the means to do so in the first place.
 
So in the future, don’t believe the hype when you read that fashion labels or sports teams are going to be bought by wealthy Chinese tycoons. And be skeptical when "bankers involved in the deal" say that Beijing is about to buy up your country.