What if the Chinese “economic miracle” were proven to be, like so many other alleged miracles, a mass of illusions? What if savvy American investors were actually shown to be quite naïve and gullible, even after everything suffered by so many during the 2008 financial crisis? What if American politicians were revealed to be sleepy dopes who tacitly collaborate with their new economic patrons, the Chinese? What if short sellers could also be saviours? What if capitalism rewards hard work but rewards scammers even more? What if American poverty and despair is the outcome of individual greed, political stupidity, weak laws, and sly Chinese business acumen? These are some of the key questions that we are made to entertain in watching this rather entertaining documentary—The China Hustle—one which has some seeds of wisdom but little water to help them sprout, and not a small number of fatal contradictions.
At its most basic, and as represented in the clips assembled below (which you are free to share), the documentary is about how shady Chinese industrial corporations, which are little more than a façade, get listed on US stock exchanges and inflate the size of their holdings, revenues, and output in order to attract American investors. It seems that little is done with the capital, in terms of actually increasing production, but instead the money is stolen. The trick is that Americans, not permitted to invest directly in Chinese companies, are however allowed to invest in American shell companies that Chinese corporations buy into, in what is known as a “reverse merger”. Think of a reverse merger as a parasite buying the body of its host, or, less dramatic, as a tenant buying out the landlord. Covering up for this fraud, engineered on a global scale, is the Chinese state, shallow and poorly enforced American regulations, and a range of conspirators from hedge funds to politicians everywhere to auditors and banks. What started off looking like the world’s new “El Dorado” ends up looking like a toxic sinkhole that robs investors blind.
First launched at the Toronto International Film Festival in September, 2017, The China Hustle is a documentary film written and directed by Jed Rothstein, and distributed by Magnolia Pictures. Rothstein has made a number of important and interesting documentaries, with one of my favourites among his works being Shouting Fire: Stories from the Edge of Free Speech. Though here it’s just the opinion of one viewer, it is unlikely many will see The China Hustle as measuring up to the same level as Shouting Fire, because of the unfortunate conceptual and narrative traps that The China Hustle not only sets for its viewers, but into which the film itself falls.
Setting the Traps
One of the truest statements in the film, which is spoken right at the opening, is that, “there are no good guys in this story”. (Not even the story itself, or the story tellers, end up being the good guys, for the reasons discussed below.) The documentary opens with a series of emblematic statements by the traditionally representative tellers of falsehoods: politicians, specifically presidents. Thus we hear first from Richard Nixon, with words spoken at the toast in Peking on February 21, 1972, during Nixon’s history-making tour of China, to which we owe so much of our present global reality:
“So, let us, in these next five days, start a long march together, not in lockstep, but on different roads leading to the same goal, the goal of building a world structure of peace and justice in which all may stand together with equal dignity and in which each nation, large or small, has a right to determine its own form of government, free of outside interference or domination”.
Nixon is followed by Bill Clinton—and here the documentary is onto something important right from the start, which is the impressive, almost seamless continuity among neoliberal political elites in the US. Clinton’s voice is heard to say: “First of all, our markets are already open to China; this agreement will open China’s markets to us”. Next is George W. Bush making a statement that is presumably remarkable for being grammatically correct: “I would call our relationship with China very positive and complex”. Then there is Barack Obama, which the dim-witted right still believes was a “socialist,” only he was the kind who channelled Theodore Roosevelt: “So I believe deeply that the free market is the greatest force for economic progress in human history”. Then, falling outside of this pattern, Donald Trump is inserted, perhaps because Trump-bashing is politically expedient (and necessary) among filmmakers—and Trump’s quote bears little relevance to the ones preceding it (which also speaks to the problematic conclusion of the film, where Trump reappears as an implied conspirator). We hear Trump stating lines he has repeated on many occasions, such as this one: “I will make a great deal and lots of great deals for the American people. Believe me!”
From that, viewers are asked: “What is capitalism?” We are told that capitalism rewards hard workers—not necessarily true, not necessarily false either, but in the US today there is far more evidence to suggest that those working hard are either poor or skirting the edge of poverty. We are also told that capitalism rewards scammers—also not necessarily true: it only rewards the smart scammers. But why did you ask your viewers about capitalism? Do you want them to reject capitalism? Or do you want them to be better capitalists? Or is it that you want them to be the only successful capitalists (the exceptionalist theme), and the Chinese can go back to filling their stomachs with dirt? The film will leave you hanging on this front.
Yet scamming is the core of this documentary. We are told in the film that as the dust of the 2008 financial crisis settled, “Wall Street had figured out a new way to package garbage as gold,” and it did so by, “engineering an enormous fraud that spanned the globe”. What smart US scammers realized is that not only capital and production could be relocated offshore, you could also offshore crime. Hedge funds, which had lost millions and billions for their clients, needed to make the money back. Enter China, with its boom, its “exploding market” that had so many in the US confident that everything could only go up. Speakers in the film—mostly journalists—comment on how China was seen as “this golden land of rapid economic growth,” with investment likened to a “gold rush”. One goes as far as saying that the result of the ascent of China is that the “American Century is over now, this is it” (Roddy Boyd, journalist, Southern Investigative Reporting Foundation). Coincidentally, the idea of the “American Century” came from Henry Luce of Time/Life fame, who was born to US missionaries…in China.
How to get in on the Chinese Dream? US investors could not invest directly in China. This is where two of the main US villains in the film come in: Roth Capital in California which listed small Chinese companies on US stock exchanges, and Rodman & Renshaw in New York, which for several years was chaired by General Wesley Clark, who also appears in this film. Roth organized “conferences,” with erotic dancers, rivers of alcohol, Snoop Dogg, Billy Idol, you name it, for its extravaganza in Orange County. Roth hosted dozens of conferences, drawing billions in investment. In New York, Rodman & Renshaw was more stuffy and staid, offering conferences that featured Henry Kissinger, Bill Clinton, George W. Bush, Colin Powell—the usual rent-a-names. Rodman & Renshaw brought over 40 Chinese companies to US markets, with an aggregate value of over $31 billion.
Banks like Roth and Rodman would then cash out, leaving others with overvalued shares. Chinese companies avoided the audits necessary to be listed on stock exchanges—this is what the film narrative first tells us, later changing the story to one where the audits were always done, but the auditors were lazy, or crooked, or both since they could be Chinese franchises. However, one way to avoid the necessary audits, in the US, is through “reverse mergers”. A reverse merger is where the shell of a US company, like the “Maggie Mining Co.” that no longer operates but is still listed, acts as a host for a Chinese company, say, Shanghai Solutions, which buys into the host company and then takes over all of its legal documentation. Between 2006 and 2012, over 400 Chinese companies were listed on US stock markets; 80% of those US-listed Chinese companies were the product of reverse mergers.
Springing the Traps
The documentary features, among others, the work of investor/researcher Carson Block, who went to China to look at one of the pulp and paper companies traded by Roth Capital. What he found was an underdeveloped, primitive operation, a facade almost; half the machines were broken, it seemed to be mostly a garbage dump. This sham had overvalued assets and overstated revenue, by as much as 27 times. We are then informed that this might be the Chinese way of doing business, because there is a Chinese proverb—“in clear water, there is no fish”—which is oddly mistranslated by a supposed China expert as “muddy waters makes it easy to catch fish”. The more important (and legitimate) point, and it’s one that applies anywhere is: opacity creates opportunity.
Deloitte & Touche vouched for the accuracy of the paper company’s statements. We are reminded that in the build-up to the mortgage crisis, ratings agencies disguised crappy mortgage bonds. Audits in China are done by supposedly reputable firms such as Price Waterhouse Coopers—except, we are told, it is actually Price Waterhouse Coopers China, a franchise—which is represented almost as if it were just another cheap, Chinese, pirated knockoff. Otherwise companies can also coopt auditors, or they can hire US legal firms, like Loeb & Loeb, to slam any detractors. However, neither lawyers, bankers, nor auditors are the ones who check a company’s books, look over its receipts, monitor the outflow of goods or interview alleged customers. Thus the scam passes under cover.
Using the same ethnographic method (speaking loosely) that was featured in The Big Short, a number of different investors, hedge fund managers, and confessed short sellers, not only traveled to China to examine some of these companies in person, but eventually also to take them through short sales and by publishing reports about their inflated values. Thus China Green Agriculture, listed on the New York Stock Exchange, was placed illegally under camera surveillance by a hedge fund for 344 days, which found little activity at the factory that allegedly produced “green” fertilizer in massive amounts. In addition, the investigators hired a fake tea salesman who went to the factory to distribute tea samples to employees. To know how many samples to leave, he obtained the number of workers and found there was only one truck driver. The results were that the company was only doing 10% of the business they claimed.
In the US, between $20 billion and $50 billion have been invested in Chinese shadows, including mutual funds, pensions, and the like, which can affect small investors and ordinary individuals on the street. In China, it’s not illegal to steal from foreign investors. Paul Gillis, professor at Peking University, compares China to the Wild West. We are then reminded of an old joke on Wall Street: “This time it’s different”—and with that, the suggestion of a coming financial crash when the bubble of overstated Chinese growth is burst.
Whenever two empires, one in decline and the other on the rise, clash, we can expect there to be an intense amount of propaganda between the two sides, one trying to fend off what appears to be its irreversible decline, while the other tries to bolster what it believes to be its intended ascent. Hundreds of years ago, the British spread exaggerations and falsehoods about the brutality of Spanish conquerors in the Americas (as if the British were more humane and enlightened, with all their slave plantations). The resulting Black Legend (seductive because it contained kernels of truth) imprinted itself in the minds of the public in Europe and North America for generations, even distorting scholarship which easily bought into the myth of indigenous extinction, of natives wiped out altogether by the Spanish in the Caribbean. While it’s not clear that the documentary being reviewed is part of a propaganda campaign, it is a possibility to which we must be alert. Let’s keep in mind the current context in which this film appears, one in which are witnessing the dawn of an economic Cold War between the US and China (see Thomas Friedman’s “The U.S. and China Are Finally Having It Out”). Ironically, The New York Times, having energetically fanned the flames of anti-Russian hysteria and xenophobic paranoia, it now accuses the Trump administration of doing just that.
There are other reasons to be wary of this documentary, and its built-in slippery slope—sliding all too fast from questioning specific frauds, to making all of China look like a bastion of fraud. Yet, somebody is definitely building all those city-scapes in China, all the new skyscrapers and malls; someone is building all those new airports; some people must be manufacturing all those goods that the US and the world are importing; and, somewhere there must be real energy companies powering those factories. However this film goes too far in its final minutes, making it all seem like a fake. A similar move would be to research the US economy by reducing it to the operations of a handful of crooked used car dealers—while never mentioning that the US built Ford, GMC, Chrysler, and so forth. It would be like saying that in terms of communications technology, what the US has to offer is a bunch of ham radio operators and CB enthusiasts who drive trucks—while never mentioning IBM, Microsoft, Apple, Silicon Valley. One thing this film does avoid, though it seems tempted a number of times, is to locate all lying in China, while painting Americans as innocent—it definitely showcases liars on both sides.
When viewing this film, keep in mind how much the central methodology of debunking Chinese companies involves judgments based on outward appearances. With that in mind, note how in this same film we are shown the offices of one of the shrewd investment companies that has done much to debunk a range of Chinese companies, exposing their fraudulent claims. We are thus shown the base of Dan David’s “GeoInvesting” company, in what appears to be a rural warehouse in Skippack, Pennsylvania—not exactly Wall Street material, for a supposed hedge fund, despite the fact its website features the usual Wall Street iconography. When the film shows the office location, it is with this narration: “Dan’s part of the story begins here, far from Wall Street. The small investment shop he ran with his partner Maj had just been crushed by the stock market crash”—and that’s a problem. The sign out front says “Don’s” and nothing about either Dan David or GeoInvesting—not good signs for a documentary that specializes in misleading outward appearances of business operations. Perhaps when Dan David said there are no good guys in this story, he rather meant it in many more ways than we might imagine.
Dan David for his part is not a professional actor, so he should not have been pressured into acting as if he could be one. There are some moments that lack any authenticity, as when Dan David is reminiscing about life in Flint, Michigan, where he was born and raised and which is featured prominently in this film, as if appealing for applause from Michael Moore. Sitting at his desk, the portly hedge fund manager who boasts of managing millions of dollars and is part of the international jet set of investors, feigns sadness that he could not have remained in dear old Flint, working in “the plant” for the rest of his life, and he drops his head with a sad little tightening of the lips. The only thing he forgot to do was to wipe away nonexistent tears.
Then there are the retirees, who lost their savings in China. One couple, in their late sixties, tells us that they had no retirement package, so they put all their money in a little known firm in China and lost $150,000. How many Americans have $150,000 to invest, to begin with? With that much disposable cash, why did they not have a registered retirement savings plan?
We come back to Donald Trump. The filmmakers let on as if they were anti-Trump, which is ironic since the documentary echoes one of his favourite themes in railing against China and all its “cheaters”. Instead, the film shows Trump signing a deregulation executive order, as if that would directly cause more Chinese firms to enjoy greater financial loopholes in the US—it is suggested, implicitly, but certainly not demonstrated or documented. Then we see Trump with Alibaba’s CEO, and since by the end of the movie all things China have been cast as shady, crooked, and based on falsehoods, it makes it look like Trump is embracing and endorsing the lie. There are no good guys in this story, not even the story tellers.
Finally, a question of journalistic ethics: at one point in the film, Wesley Clark refuses to participate any further, and clearly stated he did not want to be part of the film. Here we hear Wesley Clark clearly:
“I don’t think I want to be in the film. I think it’s just… it, it invites attacks on me. And I don’t need that. I’m trying to build a business. I don’t want to be attacked. I didn’t do anything wrong….So let’s, let’s just cancel this session, okay?…This is a mistake for me. It’s a mistake for the people that depend on me. I’ve got a firm. I’ve got people that work for me. I owe them my best opportunity to give them a living. And, this doesn’t help. This hurts. So I want out of this”.
Yet the filmmakers kept the material they recorded with him nonetheless, despite the fact that he is a private citizen and not a public official who is expected to fulfill his duty to give an account to the public, they proceed to exploit that footage. In the social sciences, we could never get away with this—when a research participant demands to withdraw, especially well before the research is complete or published, we are required to respect their wish, not use their data, and then destroy whatever data they have provided to us. Journalists have no such qualms apparently. What the filmmakers did not consider, apparently, was how this presentation placed them and their own honesty and credibility in doubt, and when dealing with such sensitive topics of veracity and opacity, that is not the kind of mistake they should be making–or to be politic about it in an American way, it’s not the kind of mistake you want to be seen making.
The film is definitely worth watching, but I would score it 6/10.
(This documentary review forms part of the political economy series on Zero Anthropology, where documentary reviews will now become a regular feature. Stay tuned for more reviews to come in the near future.)