Jed Rothstein’s ‘The China Hustle’ struggles to uncover a fraud.
Greed is not good. The morality that underpins most movies relies on that principle. We expect punishment to come to those who spend too liberally. The current genre of financial fraud cinema is no exception: all earnest updates on Brian De Palma’s The Untouchables, they focus on unsavory capitalists as our century’s version of Al Capone, similarly unmasked by heroic nerds hiding under beds of books. But much like Capone was a charismatic invention of the system that employed him, Bernie Madoff, Kenneth Lay, et al. are little more than banal creations of the collective fantasy that, somehow, your money can work for you. The drama is always the same: whenever you bother to look, the money invested is never there.
This is something that briefly occurred to Dan David, an investor whose blubbering testimony begins and ends Jed Rothstein’s The China Hustle, a feature debut that comes with documentarian Alex Gibney (Enron: The Smartest Guys in the Room) attached as an executive producer. “What is capitalism?” David asks, like a child suddenly curious about Santa Claus. A montage of American presidents precede this moment, from Nixon to Trump, each vocally opening their arms to China over ominous music. Whatever capitalism is, David and Rothstein posit, it’s being tragically lost to the Chinese.
This is an absurd premise, the kind of nativist conservative paranoia that occasionally gets forgotten in the globalism collectively embraced by the neo-liberal politic but occasionally embraced as Trumpian chic. Onward, Rothstein goes. The Chinese are coming, to Wall Street in particular. In the past decade or so, 400 of their companies have appeared listed right next to American names like Johnson & Johnson. Many of them get on the marketplace using a manner that Rothstein explains with the air of a revealing a magic trick: buying abandoned shell companies that already trade on the stock market, merging into them and, thus, with a name change appearing on the stock market but eschewing the lengthy process of going public which usually involves regulation and scrutiny by the SEC. This simple concept is called a “reverse merger,” and Rothstein explains it at length with lots of pictures. Later, Rothstein resorts to cartoon lemonade stands to depict short selling.
Reverse mergers and short selling aren’t new by any means — the latter was even the subject of an Oscar-winning drama that put it in the title. And sincee semi-public examination of assets is counterintuitive to the purpose of raising capital by being traded on the stock market, reverse mergers aren’t incredibly new either. A stock exchange is, by definition, a deliberate mirage of speculation. Companies ranging from media giants like Turner Broadcasting to smaller fare like Radio Shack and Texas Instruments have, in kind, went public by purchasing shell companies and sneaking their names onto the dubious loftiness of the New York Stock Exchange’s officious-sounding name. Rothstein, however, believes that Chinese companies that have done this are especially dubious.
Rothstein settles his story on an investment firm called Roth Capital — they are introduced to us via footage of strippers performing at some company event — and another firm called Rodman & Renshaw, who rely instead on celebrity politicians to encourage investment. Most notably, this includes Wesley Clark, a retired U.S. general who ran for president once and now makes a living sitting on the board of a number of dubious investment firms. (For this, Bloomberg once named Clark “The Penny-Stock General.”) Rothstein’s dramaturgical coup is getting Clark to appear on camera and admit that he doesn’t really know or care very much about any of these companies. This is supposed to be the movie’s Bowling For Columbine moment: Rothstein even goads Clark to leave the interview a la Charlton Heston but the gesture feels outdated. Almost two years after electing a token CEO president, who cares what a retired general does with his name?
Both firms invest in Chinese companies that have overstated their assets. Noticing this, David and a number of other unlikable bankers begin investing in funds that short sell those assets, attempting to profit on their failure. In order to make them fail quicker, they commission their own reports on the assets of those companies. Various Chinese officials then threaten these reporters, as well they should. The documentary’s banal incredulousness at its subject suggests Rothstein should watch a few seasons of The Sopranos.
Believing himself to be in some kind of moral right, David goes around calling himself an “activist investor.” This is an insult to activists and investors both, the latter an instinctively amoral crowd. The premise of Rothstein’s project devolves further into proving that the Chinese are especially devious. Aware, maybe, of the vague racism underpinning this point, he finds a Chinese academic named Y. Y. Chan of Hong Kong University to pronounce the Chinese proverb “ 混水摸魚” (“muddy waters makes it easy to catch fish”) into the camera. This is necessary to explain why one of the short-selling firms that Rothstein profiles is named after that and not, say, the blues musician of the same name. But Chan’s insight is, coincidentally, not heard from again.
Instead, we hear from Paul Gillis, a former investor from Colorado who nowadays squeaks a comfortable living at Peking University’s business school. He expands at length on the cultural history of Confucianist concept of guanxi, which he translates to “you scratch my back, I scratch yours.” From this, he intuits that the Chinese are corrupt to the core and, like Conrad’s Marlow, concludes that we are up a very mysterious creek.
Eventually, companies like Roth Capital and Rodman & Renshaw lose some $14 billion of their investors’ money to Chinese companies that short selling mutual funds have uncovered and, we assume, profited on. Their profits aren’t really talked about. A number of other Chinese firms, who are still solvent, are floated as potentially fraudulent and at this point, you wonder if Rothstein has become so journalistically bankrupt that he is doing these companies’s dirty work on Magnolia Pictures’ dime, sowing doubts for firms like Muddy Waters to short sell.
The losses affect some number of ordinary people, whose 401(k)s or pension funds bet on the wrong horse, and Rothstein eventually trots some of them in front of his camera to film them shaking their fists. Another genre cliché, the premise is uncompelling. A social system that relies on gambling as a retirement vehicle has flaws that no amount of Wall Street xenophobia can cure. If the Chinese want the remains of our failed capitalist infrastructure, they can have it.
