Money Grab in China
by Yingxue Cao, Philip H. Dybvig, and Joseph Qiu

Prior to recent reforms, it was easy for controlling shareholders in Chinese firms to siphon off funds. The popular press referred to a money grab (Quanqian) in which funds raised in the stock market were not used by the firms at all and instead were transferred directly to the controlling shareholder, usually a holding company. Investors in Chinese firms are counting on the effectiveness of the reforms in removing the money grab. We look at evidence of a money grab before reforms, and we describe the reforms and discuss the challenges investors should be aware of if they are contemplating investments in Chinese companies.