Expect adverse selection for investments in China

From the Economist:

"[The crackdown on] Mintz, Bain and Capvision struck a nerve in foreign boardrooms because they targeted the investigators, consultants, lawyers and other advisers on whose expertise outsiders ... [depend on] order to understand whom they are doing business with, to identify any hidden risks ...

The Communist authorities have always looked askance at such work and put in place rules on data-sharing and state secrets that, if enforced, could be used to curb it. Practitioners report that this year enforcement has become much more common. In areas like Xinjiang and chipmaking corporate investigations now appear entirely out of bounds. ...

The crackdown on analysts who provide info on Chinese firms to foreign investors will result in what Chapter 20 calls "asymmetric information" (Chinese firms know what their prospects are, but US investors do not).  With less information (e.g., "A few Chinese analysts working for foreign companies have been visited by authorities and pressed to present a rosier image of China"), foreign investors should expect Adverse Selection, i.e., not invest in Chinese Firms or, if they do, anticipate adverse selection by assuming the worst.