Hard lesson for U.S. investors: Chinese companies don’t make the rules in China

American investors’ shock at an ongoing regulatory crackdown in China points to a fundamental difference between the two countries that many didn’t seem to grasp: When it comes to making the rules, corporations don’t have as much influence in China as they do in America. U.S. investors in Chinese companies have been caught off guard this summer by a slew of actions Beijing has taken against homegrown tech companies, including several whose shares trade in the United States. Among the surprises was an order that app stores remove Chinese ride-hailing app Didi, just days after its massive U.S. IPO. in late June.

Authorities then suspended new user registrations for Chinese job search app Boss Zhipin and subsidiaries of Full Truck Alliance, which both listed in the U.S. in June. In late July, two U.S.-listed after-school tutoring companies plunged after a mandate telling the industry to restructure its businesses and remove foreign investment through a commonly used overseas listing structure.

Behind the dramatic shift is emerging political rhetoric around “common prosperity,” which analysts say means companies will be scrutinized for their contributions to the broader population, rather than rapid creation of wealth for a few.

Big corporations in both countries work to build political connections and influence government policy. But whereas the U.S. system is designed to let corporations influence the government, China’s system is designed to bring corporations in line with government goals. Recent government campaigns have focused on the protection of Chinese data, stemming monopolistic practices — even increasing the birth rate.

Hard lesson for U.S. investors: Chinese companies don’t make the rules in China, CNBC, Aug 19