WASHINGTON (AP) – Chinese e-commerce giant Alibaba is about to launch what may prove the biggest initial public stock offering ever. Yet anyone who expects to get rich from buying into China’s high-growth story will be betting against history.
China’s explosive economic rise has delivered virtually nothing to most stock investors. When Chinese companies have listed stocks on American markets, their shares have lost an average 1 percent a year for the next three years, compared with an average 7 percent annual gain for other U.S. IPOs, according to research by Jay Ritter, a finance professor at the University of Florida.
Most Chinese stocks trade in China, of course. And those stocks have burned investors, too. From 1993 to 2013, when China’s economy grew nearly seven-fold from No. 9 to No. 2 in the world, stocks on Chinese markets returned a cumulative total of just 7.9 percent – even if shareholders had reinvested dividends. Over the same time, U.S. stocks jumped 555 percent, German stocks 458 percent and Spanish stocks more than 1,000 percent, according to Credit Suisse.
Li at Beijing’s Central University of Finance blames government meddling for the poor performance of Chinese stocks. Authorities control which companies can sell stock to the public. They tend to green-light mainly those connected to government or Communist Party figures. And these companies, Li finds, are more likely to commit fraud and get away with it.
“There is no repercussion to getting caught,” says Dan David of GeoInvesting LLC, who bets against stocks and who helped expose the problems at Puda Coal.