What does the Chinese money invasion mean for U.S. investors? One issue is that Chinese corporate governance structures are different those in the U.S. Alibaba is actually a Cayman shell company. Indeed, Moody's pointed out that there are "potential contingent liabilities" associated with a private company called Ant Financial Services Group that is separate from Alibaba but controlled by its senior management.
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In theory, the Cayman domicile could be abused because local laws there are somewhat laxer than Securities and Exchange Commission rules. Disclosure of material information, for instance, isn't required as quickly in the Cayman Islands.
In practical terms, a large, high profile company such as Alibaba is likely to hold itself to a higher standard. Baidu, China's version of Google, is also a Cayman company and hasn't run into any major problems linked to its Cayman listing.
Another issue to consider is what happens if more Chinese companies tap U.S. bond markets. In the unfortunate event of another U.S. credit crisis, China could find itself much more affected than in the 2008 crisis, according to Brian Reynolds, chief market strategist at Rosenblatt Securities. "When the U.S. credit boom ends, bonds of Chinese companies are going to suffer," he said.
Last time around, Chinese companies had almost no connection to the U.S. credit market. That allowed China to continue growing apace while much of the West fell into recession. "The more the Chinese become hooked on U.S. credit, the more they have to worry," Reynolds said.