Why *not* to invest in China

“Wall Street English” in China =“Wall Street Institute” elsewhere
Click to enlarge. Link to article online  

This hits home for us. We were the first to establish a Wall Street English in Asia. We opened as Wall Street Institute at the beginning of 2000 here in Hong Kong. We were the Master Franchisees of the Italian-based company, founded in 1972. We then helped the China division get going and also the business in Thailand, Taiwan and Singapore. We opened in Tokyo ourselves in 2004 (exited in 2007; another story).

AFAIK, Wall Street Institute outside China is still operating. In China it’s known as Wall Street English because you can’t call something an “Institute” if it isn’t state owned — just one more case of China being more restrictive than anywhere else in the world.

So, we set up the first WSI/WSE in Asia in 2000 and sold the business it to a private equity firm in 2007. Thank goodness, we thought, shortly after, as the global financial crisis hit in 2008. And as I’ve thought ever since. Not once have we regretted having sold the business— it’s the reason we can live a comfortable life in Hong king. The pandemic and China crackdowns are more reasons to be grateful we’re not invested there.

The China business, Wall Street English, is hammered, not just by Covid, but by a new government crackdown on tutoring companies. That crack down was targeted at pre-adult cram colleges taking advantage of the brutally competitive education system in China. It was not aimed at adult education like WSE which just helps adults wanting to brush up English skills. Still, it looks like it got caught up. 

I’m reminded of our foray into real estate in China. In 2002 we bought a villa in a development in the suburbs of Beijing, Chateau Regalia. A beautiful place, 5,000-plus sq.ft. double garage, fabulous master bedroom, four other rooms all en-suite, fully Miele-fitted kitchen - family room, garden. So nice we even thought we might live there sometime (or at least J did). We rented it out instead and collected rent for some years. That’s when we started to see the downsides of owning property in China. 

Every month we had to report our rent to the local authorities and pay tax on the income. You couldn’t do it online. It had to be done in person. Which meant we had to hire a person to get on his bike (literally. And I mean “literally “ literally) and ride to the tax bureau, pay the tax and get a hand-written receipt. Which he would send to us and which we had to keep and present again to the tax authorities annually. Then we had this tax and that tax, added or increased, willy nilly. This sort of thing can happen in the west or Hong Kong of course, but there’s usually debate and forewarning and if it’s too onerous it can be taken to court. 

In the end we decided the hassle and risk of arbitrary taxation and fees was too great. We sold it. At a profit, which was nice, though about half the money we got was in Chinese renminbi which we were stuck with in China as it’s not convertible, to this day. We eventually got it out, but all up our direct foreign investment in China was more hassle than the profit warranted. 

Friends in China, property-owning mates, tell us the situation hasn’t changed. It’s still a hassle.

And now we learn from the article above that China is also closing down foreign investment in the whole education sector. So now over half of China’s economy is out of bounds to foreign investment. It’s really no wonder the west just got pissed off with it. 

By the way, among the prohibited investment areas, there’s nearly two hundred technology  companies shut out of China. Including this very blog site.  Why didn’t we push for reciprocity when we admitted China to the WTO? More fools us.