I saw this article over how Paulson got sued over not doing enough due diligence on the Sino-Forest investment. Find the WSJ article here.
How should we understand the present problem with U.S. listed companies from China?
I do not think all Chinese firms should be delisted, but I am concerned over viewing Chinese companies like we view U.S. companies.
Chinese companies have a vastly different culture of transparency and use of their company.
I personally do not invest in the Chinese stock market. It has both business risk and transparency risk. So you should think more if you plan to. Surely, to invest or do business with any Chinese company, you need a different and more detailed due diligence of the company.
I think we will do well to use worst case analysis thinking to face China. Briefly, this means to consider what might happen if someone purposely sought to deceive or lower the price. That does not mean all Chinese companies are falsifying their documents but differences in culture and practices and falsification all add up to a need to look more carefully.
I will give an example of this tomorrow.