Rothstein examines the underbelly of Chinese companies’ practice of the ‘reverse merger’
‘The China Hustle’ is an astounding expose of the mass fraud that has been perpetrated by both U.S. and Chinese parties after the global financial crisis
The China Hustle
Directed by Jed Rothstein
Written by Jed Rothstein
With President Xi Jinping’s effective extension of the length of the term of his presidency, Director Jed Rothstein’s documentary The China Hustle is incredibly relevant. It was the highly quotable Balzac who declared that “behind every great fortune lies a crime.” Such is the contention of The China Hustle and its subjects. Through a clearly illustrated set of interviews, Rothstein tells the story of the role that several Chinese companies have played in effectively harming the U.S. economy after the latest financial crisis, with some surprising details. By the time the credits roll, the audience cannot help but be left aghast.
The story begins by describing the economic landscape of the United States after the financial crisis. The hedge fund manager Dan David is introduced as someone whose funds have been wiped out by the crisis and, among the others, is devastated and searching for salvation. Here, China enters the picture. In the face of the global economic decline, the Chinese market is thriving, and everybody is all but certain that an investment in the Chinese market could only go up in value. However, there are Chinese laws that prevent foreign parties from investing directly in the Chinese companies. Luckily for us, in their generosity, large conglomerates, starting with Roth & Co., have helped to devise a special tool, the “reverse merger,” which allows defunct U.S. companies to be acquired by Chinese companies — for instance, a chemical manufacturer in Sichuan province — thereby allowing Americans to invest in the Chinese economy.
If this sounds too good to be true, it is. As we learn over the first half of the movie, the Chinese companies that participate in these “reverse mergers” grossly inflate their assets and revenues. Investors that include Vanguard funds, those that your mother and father are probably invested in, purchase the stocks after evaluating the companies at the given figures, and the price is driven higher and higher, until it crashes after investors begin to realise that there is no underlying value to the company. All told, Rothstein reports that over $25 billion worth of fraud has been committed.
Like every good story, The China Hustle has its compelling characters. There’s Dan David, the good hedge fund manager who sweetly warns at the beginning of the film, “There are no good guys in this story, including me”; there’s the ex-trader surfer dude with a conscience, Matthew Wiechert, who describes his experiences at Roth & Co., one of the chief antagonists of the film; there’s also the indignant retired U.S. General Wesley Clark, who stridently denies his responsibility for the actions of Rodman & Renshaw despite his role as an executive board member. What’s funny is the slight comical dimension that some of these characters take on, with the Loeb & Loeb lawyer embodying the slimy “greed is good” archetype, and General Wesley Clark serving as the symbol for the “figurehead for hire.”
One of the more shocking moments of the film is of the story told of Kun Huang, an investigator working for Dan David who gets detained and imprisoned for a year for probing and exposing the fraudulent companies. Though Huang is still seeking recourse, the account of constant threats to both himself and his family is harrowing and does not favorably portray China.
The film closes with a portentous air. Rothstein shows a clip of President Donald Trump and Jack Ma, the CEO of Alibaba, the world’s largest and most valuable retailer. The strong implication is that Alibaba is yet another one of the companies that are serving up “the China hustle.” And, after this series of wild exposés, it’s difficult to shrug off Rothstein’s accusations.