These 3 China Plays Show How Drastically Outcomes Differ Behind the Curtain

I’ve compared owning Chinese stocks to owning futures. As an equity investor, you don’t really have any ownership influence over management, who will always rig the game. What’s more, the Chinese Communist Party can always change regulation overnight, without warning, and paying no heed to capitalist stockholders.

Now we have three very interesting developments in China that illustrate this point:

1. Humanoid robot maker Unitree Robotics shares soared 460.3% on debut on Wednesday
2. Property developer China Evergrande has seen its founder, once Asia’s richest person, sentenced to life in prison
3. E-commerce platform Alibaba Group Holding is reporting a 9% gain in sales but a 75% drop in net income

1. Unitree Shares Blow Up on Debut

With Unitree (SH:688836), we see just how right an investment play in China can prove to be for the venture capitalists who bought into the company early and the lucky few who got an allocation in the initial public offering. I’m not among them, although I did highlight a likely first-day pop for the stock in my last column. It gave back 18.7% on Thursday but at C¥687 remains well up from the C¥150.80 listing price.

With Alibaba (BABA) (HK:9988), we see that China’s tech-sector flagship bearer remains highly profitable. We should not lose sight of its long track record of making money, with just three quarterly losses since it went public in 2014. But its shares are dipping as much as 5.4% in early U.S. trade due to concerns about how much cash it is burning to invest into artificial intelligence.

Delisted China Evergrande Group shows just how wrong an investment play in China can go. What was once the world’s largest developer by sales is reaching the end of its life, its liquidators taking Hong Kong regulators to court in a squabble over what creditors can recover.

2. Life Sentence in Shenzhen

On Thursday, a court in Shenzhen laid down a life sentence on Evergrande founder Hui Ka-yan for “egregious” crimes including fraud, embezzlement and bribery.

Hui, the adopted Cantonese name of the man also known as Xu Jiayin in Mandarin Chinese, looks grey and haggard in Thursday’s photo carried by the English-language, state-owned Global Times. The court ruled that Hui, who founded Evergrande in 1996 in the southern province of Guangdong, should have all his personal assets seized and be “deprived of his political rights for life.”

Hui once amassed a fortune of $45.3 billion, which in 2017 ranked him No. 1 in Asia’s rich list, according to Forbes, and allowed him to own a title-winning soccer club, Guangzhou FC. But his development empire, which also expanded into unrelated industries like bottled water and electric vehicles, was built on off-plan sales before projects were completed to fund land purchase and the next development project. That real-estate model collapsed after the Chinese government introduced its “three red lines” on real-estate creditworthiness in August 2020.

Rapid Collapse

While only 6.3% of property developers could meet all three requirements, according to Standard & Poor’s, Evergrande was particularly at risk, with $371 billion in obligations, a debt pile similar to the annual output of a sizable nation such as Nigeria.

Homebuyers swiftly began stepping away from purchases at developers they feared could collapse. Property prices entered a downward spiral, too, losing as much as 40%, and transactions seized up. The death spiral in the property industry intensified the pressure on Evergrande, which started to default on obligations at the end of 2021, and was ordered into liquidation in Hong Kong in 2024.

Hui, now 67, was detained in 2023 and pleaded guilty in April, a collapse I delved into here. Liquidators are trying to recover assets from the property empire, efforts complicated by the different legal systems in Hong Kong and mainland China as well as the practice of setting up multiple companies to work on every new development.

Hui also divorced his wife, Ding Yu-mei, along the way. She has built a property empire of holdings in London in particular, where she is listed as the owner of Britain’s most-expensive home which, as The Guardian explained in a fascinating piece, stands empty with a homeless person living in front of it.

Hui’s sons, Xu Tenghe and Xu Zhijian, are among 56 individuals sentenced alongside Hui, Xinhua reported.

Court to Hear Liquidation Case

It has been a long downfall for a company that saw its shares suddenly escalate from C¥4.71 in December 2016 to C¥29.90 by October 2017, a gain of 535.3%. The shares were still trading above C¥15 until early 2021. It was de-listed in Hong Kong in 2025, after 15 years as a public company.

Coincidentally, a Hong Kong court started hearing arguments this week in a case where Evergrande’s debt creditors are now suing the stock watchdog, the Hong Kong Securities and Futures Commission, which struck a HK$1 billion ($127.5 million) deal with PricewaterhouseCoopers, its original auditor, to settle investigations into its actions.

Evergrande’s debt creditors say that cash is being used to compensate minority shareholders, who should rank lower than the creditors in efforts to recover their investment. Under Hong Kong law, shareholders are normally paid out in a liquidation only after all creditors are satisfied, meaning they typically get nothing.

Suffice to say, it’s a mess, and anyone will be getting back cents on the dollar if anything. We could be in a Bleak House situation where the lawyers eat up all the proceeds!

What Real Estate Collapse? Hey, Robot Olympics!

It is very clear where China would rather investors focus their attentions. Although the Global Times gave the Evergrande sentencing front-page coverage, the story is buried deeper on the main Xinhua site.

China’s state wire service would prefer to highlight the upcoming World Humanoid Robot Games, taking place in Beijing from August 22 to 26. It has a video of a “lightning-fast” robot in training ahead of the “Robot Olympics,” where Unitree Robotics will compete among 666 teams.

Unitree’s successful initial public offering is a “vote of confidence in China’s high-tech future,” according to Xinhua, after its successful listing on Shanghai’s Nasdaq-like STAR Market.

China is likely to remain the chief site of advances in robotics, as well as the biggest testing floor, with factory and warehouse applications likely to come well before any household use. So Unitree is a stock I’ll continue to watch, with rival AgiBot reportedly also planning a Hong Kong listing, which would be far easier for U.S. investors to access.

3. Alibaba Continues to Print Money

Meanwhile, Alibaba should retain its place as a mature “China play” that offers exposure into the mainland consumer market coupled with increasing efforts in tech venture capital.

Alibaba has long been a favorite Asia play among U.S. investors but has struggled just as China’s post-Covid economy has struggled.

Its latest numbers, released after the bell in Hong Kong but before U.S. trade, show sales are up 9% while operating income fell 57% and net income dropped 75%. It blames increased capital spending on technology, with capex up 75%, for some of the operating-income decline, and a mark-to-market decline in its equity investments for some of the decline in net profit.

Still, like Microsoft (MSFT), Alibaba is reporting that its cloud-computing business is increasing, with its new AI Cloud and Compute Services division seeing revenue rise 45%, with every quarter since Q1 2024 showing an accelerated pace of sales gains. Its cloud computing has an industry-leading market share of 38.1%, while its Qwen AI models are gaining users.

It therefore makes sense to me that, while BABA missed earnings estimates, it is investing into future business lines that are already proving profitable.

Alibaba is locked in an AI arms race with unlisted telecom Huawei Technologies as well as TikTok owner ByteDance, entertainment empire Tencent Holdings (TCEHY) (HK:0700) and the “Google of China,” Baidu (BIDU) (HK:9888).

We can expect similar trends to play out in China as in the United States, with its separate tech industry growing behind the “bamboo curtain.” I’m confident Alibaba will ultimately prove a winner — and continue to spin out profits.