China’s Communist Party announced a formal investigation last month into one of the party's most senior figures, Zhou Yongkang, and one hedge fund manager says the move will bring broader political and market implications.
Jim Rickards, portfolio manager for the West Shore Real Return Income Fund and the author of “The Death of Money,” has experience doing business in China, and recently told FOX Business’s Deirdre Bolton that the investigation is the Chinese government’s warning shot to corrupt officials.
After 18 months of covert investigation, the Chinese government went public with its official investigation against the ex-security chief on July 29, according to Chinese media. The investigation makes Zhou the highest-ranking official to be placed under formal investigation in over a decade.
“Zhou Yongkang was the head of the secret police, the court administration and the enforcement of party discipline. He is the guy who’s now been arrested and investigated,” Rickards said.
While Zhou is just under investigation, Rickards said his fate might already be sealed.
“You have to understand that there is no rule of law in China. They have a constitution, they have courts and lawyers and trials, but it’s all for show….The Power Bureau, the Central Committee and the Communist Party make all the decisions,” he said.
Rickards described Zhou as part of a group of “financial warlords” in the country that use power and connections to secure multibillion dollar project contracts, such as commercial housing projects.
“If you look at these ghost cities and construction sites… why are they building all these empty things that no one needs? If you are in charge of cement, steel or construction… you scam them and then you take the money buy a place in Vancouver [and] New York.” Rickards said.
Rickards said China’s highly-unregulated legal system makes investing in the country difficult for those without government connections.
“The best way to invest in China, is to find a service business that China needs, where they pay you in hard currencies outside of China, and you don’t have to put a lot of fixed assets inside China,” said Rickards. “That way, if things go badly, you just tear up your contract and walk away.”