Wall Street Journal

Fever-Detecting Goggles and Disinfectant Drones: Countries Turn to Tech to Fight Coronavirus — Wall Street Journal

Drones spray disinfectant over South Korea. Police wear thermal imaging goggles to detect fevers in China. And a chatbot fields coronavirus questions in Australia.

The tech industry has long touted how ubiquitous connectivity, flashy gadgets and big data can improve people’s lives. The novel coronavirus epidemic is putting that bold promise to the test.

Health officials across Asia-Pacific, home to the first waves of virus contagion, have sought to repurpose existing technology to combat the fast-spreading virus. They are using smartphone-location tracking to piece together movements of suspected cases, developing government-run apps to monitor individuals’ health and keeping an eye on people’s temperature in the street with thermal goggles.

These new responses supplement traditional tactics such as quarantining sick people and canceling mass public events. But the tech-savvy tactics have yet to demonstrate broadly whether they are more game-changer than gimmick. Still, countries elsewhere might look to these solutions as the epidemic spreads.

The global number of confirmed coronavirus cases rose above 110,000 on Monday, according to data compiled by Johns Hopkins University, with infections found in 108 countries and regions.

In South Korea, the country hit hardest by the virus after China and Italy, the government rolled out a “Self-Quarantine Safety Protection” tracking app to keep digital eyeballs on the roughly 30,000 people officials told to stay home for two weeks. If a person brings their phone out of the permitted area, a mobile alert gets beamed to the individual and their government case officer.

The technology comes with a rub: It isn’t available on Apple Inc.’s iPhones until March 20. The app only works on handsets that run Google’s Android operating system used by hometown brands, Samsung Electronics Co. and LG Electronics Inc. Voluntary downloads since Saturday’s launch have been low, a government spokesman said.High-Speed Trains, International Flights: How the Coronavirus Spread

In Singapore, a Southeast Asian country hit in the early stages of the virus outbreak, health officials are asking citizens to monitor their own movements with the QR code, the black-and-white bar code used for mobile payments. A scan of these codes, found in taxis, office lobbies, tourist attractions and colleges, bring people to a webpage where they are asked to input their names, contact details and on occasion declare their health status. The voluntary scans allow authorities to reverse engineer a citizens’ whereabouts in case they fall ill or come into contact with a patient.

In Singapore’s Nanyang Technological University, where students, staff and visitors scan such bar codes to leave a digital trail of the locations they visit in the university, the data helped the university probe whether any of their 33,000 students had come into contact with a cleaning contractor who worked in the school after that person was diagnosed with Covid-19, said Tan Aik Na, a senior vice president at the university.

The system has limits. Claudia Thong, a 21-year-old Singapore university student, scans QR codes pasted on the front doors and interiors of classrooms each time she attends lessons. Some students, however, can’t be bothered to scan the codes, she said. Faculty and staff have been asked to remind their students and guests to perform the QR code check-in, the university said in a statement.

Australia’s health department directs worried citizens to a virtual assistant named “Sam.” But inquiries for “coronavirus” go unrecognized, with the site suggesting the correct spelling is the two-word, “corona virus.” A follow-up question about anxieties relating to “corona virus” produced suggestions that had nothing to do with the respiratory illness.

The chatbot will soon be updated to refer people to Covid-19 resources, an Australian health-department spokesman said.

In China, where the largest Covid-19 outbreak has occurred, cities have deployed a variety of eye-catching technologies to diagnose and contain illness. Through measures such as social distancing and isolation, China has managed to limit the outbreak mostly to Hubei province, where the infectious disease emerged and where the majority of cases have occurred.

Unmanned aerial vehicles, typically used to spot forest fires or for police surveillance, can now scan crowds in China and spot someone hundreds of feet away running a fever, said Kellen Tse, deputy general manager for Shenzhen Smart Drone UAV Co., a drone company working with two Chinese provinces. The drone, which uses thermal imaging, sends alerts about those unwell to on-the-ground officials.

“China is unlike other countries,’ Mr. Tse said. “We have a large population, that’s why we’ve turned to technology to be more efficient.”

In Shanghai, digital devices are attached to the doors of those sequestered, according to the city’s state-television channel. People are allowed to go out to empty their trash and pick up deliveries, but unauthorized door movements trigger an alarm to the neighborhood police station, a policewoman told the broadcaster in an interview.

Chinese technology firm Baidu Inc. said this month that it helped develop an algorithm for Beijing subway officials to single out commuters not wearing masks. The image-recognition algorithm, which Baidu developed and tested seven days after a request from the city’s metro administration, runs on the video feeds from subway cameras and flags individuals without a mask or who don’t wear one properly.

Shenzhen, China’s tech-manufacturing center, requests that drivers entering the city scan a QR code and leave their contact details and travel history. Police officers wear thermal helmets and goggles to identify pedestrians who may be unwell, the Shenzhen government said on social media.

But the new-age tactics have their limitations. Commercial drones can only fly for about 20 minutes before needing a lengthy recharge, and the tech-heavy defenses are expensive, said Peter Fuhrman, a Shenzhen resident and chairman of China First Capital, a boutique investment bank. He credits the conventional response of the masses of volunteers and paid monitors deployed in Chinese neighborhoods with thwarting the virus.

“Fittingly, people, not machines, made all the difference here,” said Mr. Fuhrman, who has stayed in Shenzhen since the country’s outbreak began in January.

In South Korea’s hard-hit city of Daegu, private drone companies have been deployed to help disinfect public places at the local government’s request. A single drone can load around 2.5 gallons of disinfectant and spray an area of up to 105,000 square feet—or about the size of a typical Walmart store.

“It takes about 10 to 12 minutes to use it all up,” a Daegu city official said.


https://www.wsj.com/articles/fever-detecting-goggles-and-disinfectant-drones-countries-turn-to-tech-to-fight-coronavirus-11583832616?mod=hp_lead_pos12

Chinese Education Startup Puts Western Teachers on Notice — Wall Street Journal

A Chinese education company backed by U.S. investors including Kobe Bryant is cracking down on how its Western teachers cover politically fraught topics.

VIPKid, one of China’s most valuable online education startups, has put hundreds of its mostly American teachers on notice for using certain maps in their classes with Chinese students, and has severed two teachers’ contracts for discussing Taiwan
and Tiananmen Square in ways at odds with Chinese government preferences,people familiar with the company say. Since last fall, teachers’ contracts state that discussing “politically contentious” topics could be cause for dismissal, according to one reviewed by The Wall Street Journal.

The moves highlight the balance a Chinese company must strike in fulfilling global aspirations while toeing Beijing’s line. Five-year-old VIPKid is currently in talks to raise as much as $500 million in new funding from U.S. and other investors that could value the company at roughly $6 billion, people familiar with the fundraising said.

 “A company must keep good relations with the government and ideology,” said Peter Fuhrman, chief executive of investment firm China First Capital . “But that can cause friction when you’re also courting foreign investors, expanding business overseas and employing a large American workforce.”

Beijing-based VIPKid says it has more than 60,000 teachers in the U.S. and Canada who teach English to more than 500,000 children ages 4 through 15, who live mostly in China. Teachers work as independent contractors and can earn between $14 and
$22 an hour. They must have a bachelor’s degree, at least one year of teaching experience and eligibility to work in the U.S. or Canada.

Curricula are provided, and teachers give English-language instruction, sometimes using geography or historical figures. VIPKid’s approach is consistent with maps and materials in the Chinese education curriculum, which calls Taiwan a part of China. Textbooks don’t mention the military’s suppression of the Tiananmen Square pro-democracy demonstrators in 1989, and discussion of it is forbidden.

A spokesman said VIPKid has “an elevated level of responsibility to protect the safety and emotional development of the young children on our platform.” The company expects teachers to understand cultural expectations, he said, adding it had to “make a difficult decision” to terminate the contracts of “an exceptionally small number of teachers” who “decided to ignore the needs of their students” and “the preference of their parents.”

Western companies including Gap Inc. and hotel giant Marriott International Inc. have been forced to apologize in the past for
online communications, websites or merchandise that angered Beijing or Chinese consumers on issues including Taiwan and Tibet.

Chinese education technology attracted $5.3 billion in investment last year, double the amount a year earlier, according to Dow Jones VentureSource data. VIPKid’s investors include U.S. hedge-fund firm Coatue Management LLC, venture-capital firm Sequoia Capital, Chinese social giant Tencent Holdings Ltd. and a venture fund co-launched by retired NBA star Kobe Bryant.

The company’s actions have rankled some teachers. Typically, these instructors have displayed maps of the world, including China, that they found on their own. Starting last fall, hundreds began receiving emails or calls from VIPKid stating their maps weren’t aligned with Chinese education standards, people familiar with the matter said. Teachers who refuse to adhere to the map standards could have their contracts terminated, after conversations with VIPKid. Map-related dismissals haven’t happened, said a person familiar with the company.

Will Rodgers, a 26-year-old American teacher based in Thailand, said he discussed Tiananmen Square twice during VIPKid lessons about famous Chinese landmarks. First, he told a 12-year-old student “the Chinese government jailed and killed
many people just for protesting.” He then showed a 15-year-old student photos and video footage of the protest, and his contract was terminated. Mr. Rodgers said he doesn’t agree with VIPKid’s stance, but doesn’t blame the company for ending his contract.

Another American teacher’s contract was terminated earlier this year after he told students that Taiwan was a separate country, according to people familiar with his case. A third teacher received a call from VIPKid after telling a student that Tibet, an autonomous region in China with a history of separatist activity, is a country, during a lesson on China’s neighbors, according to a
person familiar with the matter. He was told on the call he should refer to Tibet as part of China.

People familiar with VIPKid say it monitors classes for missteps over political content. Another person familiar with the matter said the company uses artificial intelligence to determine material students find engaging and to protect them from inappropriate behavior.

Some teachers and VIPKid investors say that education from foreign teachers, even if it is screened, can benefit students because they get exposed to other cultures. Rob Hutter, a founder and managing partner of Learn Capital, an early investor in VIPKid, said the company is trying to take a common-sense approach by teaching uncontroversial content.

“No matter what nation you’re teaching in, there are going to be things that we need to be thoughtful about,” he said. “Even in American classrooms, there are things you cannot discuss.”

“No matter what nation you’re teaching in, there are going to be things that we need to be thoughtful about,” he said. “Even in American classrooms, there are things you cannot discuss.”


https://www.wsj.com/articles/chinese-education-startup-puts-western-teachers-on-notice-11553160602?mod=hp_lista_pos3


WikiLeaks Dump Adds to China’s Foreign-Tech Wariness — Wall Street Journal

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While the purported CIA documents leaked this week by WikiLeaks focus on the likes of Apple and Samsung, Chinese companies like Huawei do get some coverage. 

While the purported CIA documents leaked this week by WikiLeaks focus on the likes of Apple and Samsung, Chinese companies like Huawei do get some coverage.  

BEIJING—The latest WikiLeaks trove hands fresh ammunition to China’s cyberspace hawks, already pushing to reduce dependence on foreign products that could be vulnerable to espionage, observers say.

“The level of alarm in China will certainly increase, and with it a renewed determination to clamp down still further on U.S. technology companies’ operations in China,” said Peter Fuhrman, chairman of Shenzhen-based advisory firm China First Capital, which follows China’s tech sector.

The documents released this week—more than 8,000 pages in all—purport to show how the U.S. Central Intelligence Agency breaks into computers, smartphones, TVs and other electronics for surveillance. Many documents deal with leading non-Chinese brands like Apple Inc. and Samsung Electronics Co., though there is some coverage of Chinese products, including routers from Huawei Technologies Inc. and Baidu Inc.’s search engine.

The Chinese-product references are relatively sparse—and, in some cases, obscure. An undated list of CIA internal hacking demonstrations, for example, includes the “Panda Poke-Huawei credless exploit”—which one cybersecurity specialist says may be a method for taking advantage of vulnerabilities without logins or other “credentials.” There is also the “Huawei VOIP Collection,” a reference to “voice over internet Protocol,” making phone calls over the internet.

The document doesn’t say whether these methods were used for intelligence gathering. Huawei declined to comment.

A file titled “Small Routers Research-work in progress” lists router models from Huawei and ZTE Corp. It also mentions China’s three state-owned telecom companies and Baidu’s search engine, without further details.

The telecom companies and Baidu declined to comment.

The leak also offered what seem to be workaday notes among colleagues, including one CIA worker’s complaint about one piece of software’s default-language setting. “I don’t speak Chinese,” he griped.

WikiLeaks’ website is blocked in China, but Chinese state-run media reported the document leak, focusing on U.S. companies. Overall response has been muted, possibly because the official spotlight this week is on Beijing’s annual legislative gathering.

Cybersecurity experts say China maintains its own robust cyberhacking apparatus, though Beijing characterizes itself as purely a hacking victim, not a perpetrator.

“China is opposed to any form of cyberattack,” foreign ministry spokesman Geng Shuang said Thursday. “We urge the U.S. side to stop its wiretapping, surveillance, espionage and cyberattacks on China and other countries. China will firmly safeguard its own cybersecurity.”

In recent years, China has seized on leaks about U.S. surveillance to fan public support for its domestic tech products. U.S. tech brands felt a chill after former U.S. National Security Agency contractor Edward Snowden revealed NSA surveillance methods in 2013.

“It is like snow on more snow,” one China executive of a U.S. technology company said of the potential sales impact of the latest leaks.

These leaks could help countries counter CIA tapping and develop their own capabilities, said Nigel Inkster, former deputy chief of U.K. spy agency MI6.

“China, Russia et al will now both be better attuned to the risks posed by these capabilities,” he said, “and will no doubt seek to use them themselves.”

https://www.wsj.com/articles/wikileaks-dump-adds-to-chinas-foreign-tech-wariness-1489061414

China’s Xiaomi Under Pressure to Prove Value to Investors — Wall Street Journal

WSJ

Headline

Xiaomi’s Redmi 2 smartphones on display during a launch in Brazil in June, 2015.
Xiaomi’s Redmi 2 smartphones on display during a launch in Brazil in June, 2015. Photo: Reuters

BEIJING—In January 2015, Xiaomi Corp. founder Lei Jun announced to his staff in an open letter that the Chinese smartphone maker was the world’s most valuable technology startup.

“We will journey into the constellations, to places where others haven’t dreamed of,” he wrote.

Living up to those high expectations has been a challenge. Xiaomi missed its 2015 sales target of 80 million smartphones, according to people familiar with the company, and investors are beginning to question its $46 billion valuation, which was based on yet unrealized plans to generate substantial revenue from Internet services.

China’s economic slowdown, coupled with turbulence in the stock market, is prompting investors to take a second look at China’s high startup valuations. Startups such as Xiaomi, which raised vast sums on China’s mobile Internet boom, are now facing growing pressure to live up to expectations.

“With China’s economy slowing, many startups will need to be more cautious in their expansion strategies,” said Nicole Peng, an analyst for market research firm Canalys.

Xiaomi shot to the top of China’s smartphone market in 2014 with the novel idea of selling hardware by gathering a large user base, a business model usually favored by Internet companies, not those selling a physical product. Sales that year tripled to 61 million smartphones, compared with a year earlier. Mr. Lei cultivated fan clubs and used “flash sales” to sell smartphones with iPhone-rivaling hardware at a fraction of the price. He swallowed thin margins, betting he could later sell services to users.

Investors swooned. In December 2014, Xiaomi raised a $1.1 billion round that valued it at $46 billion, topping even ride-sharing startup Uber Technologies Inc. at the time, although Uber has since regained the lead.

But Xiaomi’s smartphones, which once sold out in minutes in limited batches via online flash sales, are now easily available—a shift that analysts say signals slowing demand.

A slowdown in China’s smartphone market has laid bare Xiaomi’s weaknesses.

Xiaomi has lost market share against established competitors with more financial and technological firepower, such as Huawei Technologies Co., which launched a high-end smartphone line and overtook Xiaomi as China’s top handset maker in the third quarter 2015, according to research firm Canalys.

Huawei, which sold more than 100 million mobile devices last year, is beefing up its marketing in overseas markets in a bid to challenge Apple Inc. and Samsung Electronics Co. , the world’s two biggest smartphone makers. Huawei’s engineering strength and brand image built up over decades make it difficult for Xiaomi to compete in China, analysts say.

“The competition in China’s smartphone market has intensified tremendously this year,” said a Xiaomi spokeswoman, who declined to comment on the company’s valuation or say whether it met its 2015 sales target. She said Xiaomi sales were “within expectations” and its flash sales are primarily for new phones when production ramps up.

The lack of its own high-end chip technology also proved to be a competitive disadvantage for Xiaomi in 2015. When early versions of the Qualcomm Inc. ’s Snapdragon 810 processor were reported to overheat, it dampened sales of Xiaomi’s most expensive handset yet, the 2,299 yuan (US$349) Mi Note, analysts said. Xiaomi couldn’t fall back on an in-house developed chip to get around the problem, as Huawei and Samsung did.

Xiaomi and Qualcomm declined to comment on the processor. Analysts say the problems have since been fixed.

Overseas growth has also been slow for Xiaomi, with the percentage of its smartphones sold overseas in the first nine months of 2015 rising to 8%, compared with 7% in the 2014 calendar year, according to Canalys. It faced tough competition overseas, and found consumers unaccustomed to online phone-buying, said Ms. Peng, the analyst from Canalys.

Xiaomi’s thin patent portfolio also became a hurdle as it sought to expand in markets such as India. A lack of patents led to a court ruling that crimped its access to the crucial India market. In December 2014, India’s Delhi High Court ordered Xiaomi to stop selling all smartphones not running on Qualcomm chips due to a patent lawsuit filed by Sweden’s Ericsson. A year later, the injunction remains, which means Xiaomi can’t sell its popular models running chips made by Taiwanese chip maker MediaTek Inc.

Xiaomi said it sold 3 million smartphones in India from July 2014 through August 2015, and 1 million smartphones there in the third quarter. Its average quarter-over-quarter growth is 45%, it said.

The lack of a diversified customer base is another challenge for Xiaomi. It remains “locked in a Chinese demographic ghetto of mainly males 18 to 30,” said Peter Fuhrman, chairman of China-focused boutique investment bank China First Capital. Xiaomi’s focus on low prices has hit its brand image, he said.

Xiaomi’s average smartphone price fell to $122 in the third quarter from $160 a year earlier, despite China’s smartphone sector moving upmarket, according to IDC. The average price of a smartphone in China rose to $240 from $202. Huawei’s rose to $209 from $201. Xiaomi’s best-selling model last year was its cheapest, the $76 Redmi 2A, IDC analyst James Yan said.

Xiaomi’s supporters say the outlook is still bright, as it shifts to building an ecosystem of smart home products. The company has invested in 56 startups so far, ranging from iconic scooter maker Segway to a manufacturer of air purifiers, essential in China’s smog-choked cities.

“Xiaomi’s promise lies in its ecosystem,” said Steven Hu, former partner in Xiaomi investor Qiming Venture Partners.

But others are skeptical.

“Mobile services, e-commerce, branded consumer products—these still are largely just a figment rather than a huge and growing source of profits that could validate last year’s sky-high valuation,” said Mr. Fuhrman.

 

http://www.wsj.com/articles/chinas-xiaomi-under-pressure-to-prove-value-to-investors-1452454204

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China IPO, the media headline and reality could hardly be more worlds apart — Reuters

Reuters

Reuters headline

 

 

Spot the difference between the headline and the factual content of the article? One is designed to capture your attention, if not ruin your day. The other conveys less alarmist, less hyperventilated facts.

Something similar is at work in this article published by Reuters yesterday on China’s IPO market, the recent delays and the prospect for resumption later this year. Click here to read the Reuters article.

Reading just the headline, “China IPO promised land turns to desert as regulator review stokes confusion“, and you would likely conclude China’s IPO market had turned to a barren wasteland, where no Chinese company would anytime soon be able to tap the public markets for capital. One certainly would not expect, 24 hours earlier, another respected business publication, in this case the Wall Street Journal,  to publish an article that suggests the IPO process in China is about to boom.

Yet, that’s what happened. Same weekend. Same China. Wildly divergent realities.  Here’s the Journal article.

So, what’s going on here? Well, first off, the Wall Street Journal article is, both headline and body, a lot closer to the truth, at least as far as I’m able to judge. IPOs in China, after a two month hiatus, are about to start up again. The country’s securities regulator, the CSRC, is introducing a new market-based process of IPO approval. It’s a 180-degree change over the IPO system in China prevailing until the start of this year. Big change, and some big bumps along the road. But, overall, China is heading clearly in the direction where IPOs — which companies, when and at what listing price — will be decided by the market, by investor demand, not regulatory fiat.

The Reuters story, on the other hand, tries to mount a case that things have broken down rather seriously. The text of the article, to be fair, doesn’t entirely reflect the content of that headline. This sometimes happens, based on my experience back some twenty years ago working as a journalist. But, the gap here between headline and story, as well as between headline and fact, is larger than one might like to see.

My guess is the Reuters reporters started out with a plan to write about the breakdown in China’s IPO market, gathered up some quotes, as well as a bit of evidence, in the form of 24 companies (out of a total of over 700) dropping off the IPO waiting list. They called me ten days ago asking for a comment, probably knowing I don’t see things to be quite so dark and hopeless. That quote appears at the very bottom of the article. Here’s the full text of what I told them.

The Reuters article was written, edited and was waiting to be published when, perhaps inconveniently for Reuters,  the CSRC unexpectedly announced late Friday that 28 Chinese companies are well-along in their IPO plans and should close their fund-raising soon. That’s the story the Journal published.

Reuters went ahead and published its story. It didn’t bother to change that gloomy headline, and didn’t mention this news about a large batch of IPOs about to move forward. The “desert” Reuters describes apparently can sustain IPO life after all.

 

 

 

 

Cease and Desist on Delist-Relist — Wall Street Journal Op-Ed

WSJ1

It’s only a moderate exaggeration to say that everything I’ve learned of value and enduring truth about politics and economics over the last 25 years came from the editorial pages of the Wall Street Journal. For just as long, the one writing goal I’ve held onto was having an op-ed published there. Today’s the day.

Cease and Desist on Delist-Relist” is running in today’s Asian edition. I’m delighted. I owe a huge debt of thanks to the Journal’s Joe Sternberg who encouraged me to submit the piece, and then did masterful work shaping and reworking the text from earlier blog posts. 

I’ve known my fair share of editors. When I was at Forbes Magazine many years ago, I had the good fortune to have a fair percentage of my stories edited directly the then Editor-in-Chief, Jim Michaels, who richly deserves the reputation as one of the finest ever in business journalism. He was a maestro. Other Forbes editors? Often klutzes. Joe’s editing work is of Michaels quality. I have no higher standard, or stouter praise.

The full text as published by the Journal is copied below. For anyone who’d like to read the earlier draft, about 15% longer than this version, you can click here. 

  
  
 

 

  • The Wall Street Journal

 

Foreign private-equity firms have a history of running into trouble in China. Generally consigned to buying minority stakes instead of the traditional buy-out-and-turn-around model they mastered back home, several big-name firms have become collateral damage in various corporate fraud sagas. Yet now some PE investors look set to jump into what could be the worst China investment move of all: the “delist-relist” deal.

The theory is simple. Hundreds of Chinese companies have gained listings in the U.S. via reverse takeovers, injecting all of their assets into a dormant shell company with shares traded on NASDAQ, AMEX or, more commonly, over-the-counter. Only then do the Chinese firms discover the enormous compliance costs associated with being listed in America, not to mention the low valuations for U.S.-traded shares relative to what a Chinese company could pull from equity markets back in China.

Enter PE investors to buy out the American shareholders, delist in the U.S., and then cash out by relisting in China. Several such deals have already been hatched, including one by Bain Capital to spend $100 million taking private NASDAQ-listed China Fire & Security Group; two deals orchestrated by Hong Kong-based Abax Capital, the planned buyouts of NASDAQ-listed Harbin Electric and Fushi Copperweld for more than $700 million; and Fortress Group’s financing to take Funtalk Holdings’ private. Conversations with market participants suggest quite a few other PE firms are now actively looking at such transactions.

Yet while the superficial appeal is clear, the risks are enormous and unmanageable, and have the potential to mortally wound any PE firm that tries.

The first problem relates to the aspect that most excites PE firms about delist-relist deals: the low share price in the U.S. The assumption generally is that this is simply bad luck. Many Chinese companies ended up trading over-the-counter or at low valuations on NASDAQ as a result of their reverse mergers. Share prices stay depressed, the theory goes, because American investors don’t understand the company’s business or trust its accounting.

That may be too generous to the Chinese executives. Those managers were foolish to have done a reverse merger in the first place. One can infer the boss has little knowledge of capital markets and took few sensible precautions before pulling the trigger on the backdoor listing that has probably cost the firm at least $1 million in fees to complete and ongoing regulatory compliance. An “undervalued asset” in the control of someone misguided enough to go public this way may not be undervalued after all.

Next, there are the complexities of taking a company private. For instance, class-action lawsuits have become fairly common in any kind of merger or acquisition deal in the U.S., with minority shareholders often disputing the valuation. With Chinese companies, distance, differences in accounting rules, and unusual corporate structures are likely to lead to bigger disputes over what a company is actually worth.

As if all that weren’t bad enough, it is far from certain that these Chinese companies, once taken private, will be able to relist in China. Any proposed initial offering in China must gain the approval of the China Securities Regulatory Commission. There is a low chance of success. No one knows the exact numbers, but from my own conversations with Chinese regulators, it seems likely that only 10%-15% of the more than 150 companies per month that applied to list last year gained listings. Companies whose U.S. listings failed will almost certainly suffer a serious stigma in the CSRC’s eyes. PE firms could end up owning firms that are delisted in the U.S. and unlistable in China.

Making a failed investment is usually permissible in the PE industry. Making a negligent investment is not. The risks in these deals are both so large and so uncontrollable that if a deal were to go wrong, the PE firm would be vulnerable to a lawsuit by its limited partners for breach of fiduciary duty. Such a lawsuit, or even the credible threat of one, would likely put the PE firm out of business by making it impossible for the firm to raise money. In other words, PE firms that do delist-relist deals may be taking an existential risk.

Why, then, are PE firms considering these deals? Because they appear easy. The target company is usually already trading on the U.S. stock market, and so has a lot of disclosure materials available. Investing in private Chinese companies, by contrast, is almost always a long, arduous and costly slog requiring extensive due diligence. Delist-relist seems like an easy way in, especially for smaller, less experienced PE firms.

By some counts, America’s largest export to China is now trash and scrap for recycling. These delist-relist deals have a similar underlying logic, that PE firms can turn American muck into brass in China. But that’s a big and very dangerous gamble. The only people certain to do well out of these deals are U.S. investors who sell out now at a small premium in the “take private” part of the deal.

Mr. Fuhrman is chairman and chief executive of China First Capital. This column is adapted from a report recently published by CFC.

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