Investing in Communist China? Are they even Communist?
As the western stock markets went south in the wake of the 2008 financial meltdown, Chinese companies became an attractive option to investors. Unfortunately, recent concerns over the authenticity of their balance sheets and the true nature of their operations have caused several of these stocks to nosedive in recent months. In part due to faulty research, in part due to misstatements from the companies, the market now appears to be correcting the overenthusiasm of the past few years.
It should come as no surprise that Wall Street is getting mixed messages on the future of China’s economy. Investor Jim Rogers, Chairman of Rogers Holdings, declared recently that “China’s not going to be Communist ever again.” The same day, Reuters reported that China’s Communist Party (CCP)declared that it sees no end to its rule over the country. Li Zhongjie, a deputy head of the Party’s History Research Center, puts it rather bluntly:
Objectively, the issue is rather: how is your rule, and how effective is it? Is it welcomed by the people? Are you running the country well, or into the ground? The Communist Party has built China to what it is today. Many countries in the world are extremely envious. So why can't we carry on? It's a very simple question.
With the CCP maintaining one-party rule for the foreseeable future, it’s unlikely that China will develop a true free market economy and that strong state controls will remain necessary for the growth of prosperity.
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