In his sober, and sobering article “Didi’s delisting revives US-China decoupling risks” (The Long View, December 4), John Plender asks whether China is an investment dead end, and answers by listing various problems before adding, “For the rest it is simply a question of whether risk is being realistically priced.”
That sounds reassuring, but how realistically can you price risk in today’s China? What discount do you assign to the absence of the rule of law to govern corporate managers and protect investors? Or to the absence of freedom of expression for financial, economic and political analysts and commentators? Or to the subordination of every company to an unelected government, and the subordination of the government to a single and constitutionally supreme political party, led by an unelected official untrammelled by term limits, who has centralised authority in his hands to a degree not seen since Mao?
The difficulty of realistically pricing risk in China has been repeatedly demonstrated over the past 12 months. Consider just a few examples: on October 26, 2020, the price at which Ant’s shares were to be offered in its forthcoming IPO was set at a level that would have raised $34.5bn, the biggest initial public offering of all time. Those who set that price clearly had not priced in the risk that one week later the IPO would be “suspended” (ie cancelled). When investors paid $4.4bn for shares in Didi on June 30 this year, they clearly had not priced in the risk that within days action by Chinese regulators would tear the heart out of its business.
For years, investors in and customers of Evergrande have priced in the assumption that the state would guarantee the property developer against failure. How realistic does that look now?
Roger Garside
London SW16, UK
