If I build a company with the assumption that the rules of the locale it operates never change, I'm certain that I'm the fool in the conversation.

What you describe is a known risk that anyone with a lick of sense should be accounting for, before they invest.

From a US government perspective, the options are either let people invest their money in China or not let people invest their money in China. To let people decide on their own if investing money in Chinese companies is worth the risk seems to me to be the more free market option than our government forbidding it. That China can then pull the rug out from under you is the risk you take due to your choice of investment, if we wanted the government to protect people from that risk it should have been done before investment happened, not after.

There is significant counterparty risk when investing in China. It's a shame that people had to find out like this. Or maybe it's for the best.

If they're choosing of their own free will to participate in the market, it's a free market. No one said anything about a safe market.

free market where if i want to invest into a Chinese company i have to invest into a fake company in the Bahamas? If i want to really invest into China there are crazy rules and in the end they will just take your ip...