Last week, Ultrasonic AG, a Chinese shoe company listed on a German exchange, joined the long list of Chinese “buyer beware” companies when its CEO Wu Qingyong, along with its COO disappeared without warning, leaving their company to wonder where they went. On the same day, the company faced the possibly related disappearance of nearly all its cash, a situation it relayed to the market in cryptic legalese by saying the cash was, “no longer in the company's range of influence.”
On Monday, the firm announced that Wu had contacted the company to say he would return, and that he would give back any funds. Wu also appeared in a video interview on Sina to assert that he was merely travelling and had lost his phone. If you think that sounds like a preposterous, unbelievable excuse – if you can scarcely believe an adult would be willing to make such a claim – you are probably on safe ground, considering that Wu went on to assert, “The company's (Ultrasonic AG) financial situation remains normal,” a statement flatly contradicted by the known facts.
What could possibly be going on here? Anything, really. Simple thievery is certainly a possibility, but it's hard to imagine what Wu would gain from granting interviews if he were merely a fugitive with a bag of stolen cash. Equally likely is the possibility that Wu is caught up in China's unique brand of communist corporate feudalism in which various officials have tremendous power to determine what is and isn't permitted within their own domains, but little power in other areas.
Wu might yet get his old job back, or he might disappear, or he might be sent to prison – he might even be executed – but we'll almost certainly never know what actually happened, and there's a lesson in that. In China, there is an impenetrably thick haze covering not just the cities, but the entire corporate and judicial system as well. Any time you buy stock in a Chinese company, you are trusting your money to people whose names you will never learn and whose interests you cannot even imagine.
Think it over, just in case you were planning on buying Alibaba (BABA) “on the dip.”
Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.