My only question is China apparently doesn’t think it need foreign investment any more? I mean this latest move will scare a lot of foreign investment away (“that’s a nice valuation you have, would be a shame if we made all for-profit companies illegal”). No doubt the Chinese are smart enough to know this so I assume they have enough domestic wealth to supply any capital needs?
Still, scaring off the international markets seems like a bad move.
China hasn't really needed more foreign investment for quite a while. They get plenty of foreign capital from international trade.
What they needed was foreign IP, which they acquired by forcing foreign companies into joint ventures if they wanted access to the Chinese market. Not to mention state-sponsored industrial espionage.
At this point it's safe for any foreign investor to assume that any investment proposal in China that doesn't involve the transfer of IP to China is a scam.
>...Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the "absolute priority" rule — since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company's secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers — unsecured creditors, but possessed of better political connections — received more than 40 cents on the dollar.
>Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a "deficiency claim" — the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the wronged creditors. Were bankruptcy experts to comb through American history, they would be hard-pressed to identify any bankruptcy case with similar terms. .
https://www.nationalaffairs.com/publications/detail/the-auto...
This battle was always going to happen! They just thought they had the better legal arrangement and would instead stick it to the pensioners. I have no sympathy.
No sympathy why? Because they're greedy investors and on the other side are hard working honest pensioners?
My actual issue is more along the lines of caveat emptor. People bought junk bonds in a company that then went bankrupt. That means they're going to be in court trying to recover money, and there's a lot of risk there about what they might or might not recover.
To the extent that the legal resolution was unprecedented... so was the top carmaker entering bankruptcy with all of those employees and pensions on their books. Biggest bankruptcy of that sort since the depression. Precedent isn't a suicide pact, when things get weird then people can adapt.
The example I quoted was about Chrysler. The actual largest bankruptcy was Lehman Brothers not Chrysler (or GM) The Lehman Brothers bankruptcy was about 15 times larger larger than Chrysler.
If the government wanted to save the pension, then the government should have increased the bailout to pay for it. This would have been better than breaking the rule of law just because the non-secured creditors have more political pull.