Americans Invested Billions in Chinese Companies. Now Their Money Is Stuck.

When investors talk about “zombie” companies, they’re usually referring to distressed start-ups that are hobbling along, unable to grow and unlikely to ever return the money they’ve raised.

But as deal makers feverishly debated efforts this week by lawmakers to force TikTok’s Chinese parent company, ByteDance, to sell the app, they talked about a new version: China zombies.

China zombies may have booming businesses, but they’re unlikely to provide investors with any immediate return because they’re stuck in geopolitical cross hairs.

It’s not just the investors in ByteDance who, after handing it more than $8 billion, are stuck. What looked like a mammoth growth opportunity just a few years ago — inspiring investors to pour money into companies like Ant Financial, PingPong and Geekplus — has turned hostile.

“There’s more out there like ByteDance,” Evan Chuck, a partner at the advisory firm Crowell, said of companies with investors who may find themselves in this position. “It’s only really heating up further.”

Selling is increasingly a long shot. Take TikTok. Even if ByteDance puts the app up for sale, the Chinese government is unlikely to allow the company’s most valuable asset, its recommendation algorithm, to be included. The country introduced new export control rules for technologies like that algorithm in 2020, just as TikTok was nearing a deal with U.S. buyers (which eventually fell apart).

Jonathan Knee, a professor at Columbia Business School and an adviser at the investment bank Evercore, said any company that acquired TikTok would most likely own the brand but not the underlying software and algorithms. He compared buying TikTok without its algorithm to buying Hulu without the rights to its content. “It’s not completely clear what you’re buying,” he said.

Many other Chinese tech companies would face similar hurdles if they tried to sell to a U.S. buyer. And China’s slowing economy has depressed company valuations, making a sale there unappealing to investors. The number of Chinese companies that were acquired last year, 3,151, was half the total of 6,341 in 2019, according to the financial data company Dealogic.

I.P.O.s have become tricky. Few Chinese companies have listed in the United States since the ride-hailing giant Didi delisted its shares on the New York Stock Exchange amid a crackdown by Chinese regulators just months after its initial public offering in 2021. The number of Chinese start-ups listing their shares on U.S. exchanges dropped from around 18 annually between 2018 and 2021 to just three in 2022, according to PitchBook, which tracks start-ups.

Listings on China’s exchanges are also facing increased scrutiny. The country’s market regulator vowed this week to tighten oversight on companies listing domestically, given the collapse of the Chinese stock market.

Billions of dollars are at stake. As recently as 2021, venture investors were pouring nearly $47 billion into Chinese companies, according to PitchBook. It’s not just venture capital at risk. U.S. public pensions and university endowments invested about $146 billion from 2018 to 2022, according to Future Union, an advocacy group focused on exploring U.S. investments abroad.

But there’s little incentive for a quick sale to a local partner while under duress. “At the end of the day, there’s going to have to be some exit opportunity — the question is timing,” said Andrew King, who wrote the Future Union report. And given the high returns that investors in companies like ByteDance might get without geopolitical pressure, he added, “they’re not likely to want to take a shortcut path.”

Investors have other routes to liquidity, like borrowing against their investment. Investors could also wait until the relationship between China and the United States improves, or bet that China values the capital infusion that a large deal could provide more than geopolitics.

But mostly, Jonathan Rouner, the head of international mergers and acquisitions at Nomura, told DealBook, “their hands are tied.” — Lauren Hirsch

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Revisiting HP’s disastrous deal

Over the past three decades, Hewlett-Packard has struck some of the most disastrous deals in Silicon Valley. One of them — its $11 billion takeover of Autonomy in 2011 — will come into focus on Monday when the criminal fraud trial of Mike Lynch, the British software company’s founder, is set to begin.

HP has said it wrote down the deal by $8.8 billion because of fraud. But as DealBook’s Michael de la Merced writes, Lynch’s defense will hang on reversing the common wisdom that Autonomy duped HP.

Most remember Autonomy as an embarrassing chapter for HP. The deal was orchestrated by Léo Apotheker, who as HP’s chief executive sought to transform it into a cutting-edge software company. A key to that plan was buying Autonomy, which focused on data analysis.

But Wall Street revolted soon after the deal was announced, and a month later Apotheker was fired. (The New York Times’s James Stewart once called him a contender for the worst tech C.E.O. in history.) Lynch was fired in May 2012. That November, HP took an $8.8 billion accounting charge related to Autonomy, citing “accounting improprieties” like the backdating of contracts and the improper characterization of hardware sales to inflate revenue.

Lynch has sought to offer an alternative account. He has blamed senior executives who clashed with him — including Meg Whitman, who replaced Apotheker as HP’s chief executive — for Autonomy’s disintegration. His lawyers have argued that HP executives, for example, knew about the hardware sales and hadn’t raised them as an issue.

They have pointed to internal emails showing shifting calculations of Autonomy’s worth, which at one point put its value at more than $11 billion.

The Autonomy deal had lasting consequences. It was a huge black eye for HP, which has since been overshadowed by the likes of Alphabet and Meta.

And Lynch, once referred to as Britain’s Bill Gates, has been repeatedly defeated in court battles over the years. Should he lose the U.S. criminal trial, he faces up to 20 years in prison.

The curse of ‘pseudo-productivity’

Few know more about “productivity” than Cal Newport, who has published several books and hosts a popular podcast on the topic. His latest book, “Slow Productivity: The Lost Art of Accomplishment Without Burnout,” is a clarion call for workers overwhelmed by meetings, email and messaging apps to rethink how they work. He spoke with DealBook about why “slow productivity” works not only for workers but for companies. The interview has been condensed and edited.

How is doing fewer things good for your boss?

When you agree to do something, it brings with it administrative overhead: emails and meetings that relate to that commitment. If you have too many things on your plate, so much of your day is now spent talking about your work that you have very little uninterrupted time left to actually do it. And the rate at which you’re finishing things really can drastically fall. So only working on a small number of projects, paradoxically, speeds up the rate at which you’re finishing things.

This is not a zero-sum dynamic — it’s not that I’m going to make my life easier at the expense of making my employer’s bottom line worse. It makes everyone’s life better.

You’ve written that hybrid work can make administrative overhead worse. Many people also see hybrid work as a way to create some relief from unnecessary corporate grind. Which is it?

With hybrid work as it’s implemented now, you get no relief from pseudo-productivity because you can demonstrate visible effort digitally. The way to make hybrid work work is to say, when you’re at home, no meetings, no email. At-home days really should have complete intellectual flexibility. You’re working on what matters, and then on office days we can have meetings.

What can executives do to make sure employees are doing meaningful work?

I would say, “We are going to get explicit about workload, and how many things you should be actively working on, and how we’re going to track that, and how we’re going to make sure you don’t have too much happening at the same time.”

Some executives might see an initiative like that as fluffy. They believe they’ll get better results if employees tough out long hours and overload. How would you convince them they’ll actually make more money this way?

If you want to prove that you or your employees are tough, install a pull-up bar. But if you really want to produce good stuff, what you want is people focusing like a laser on one thing at a time, doing the best work they’re capable of, and then moving on to the next thing. To sit on email or Slack all day, it’s not a demonstration that you’re hard. It’s just a demonstration that your organization is relatively haphazard in how it goes through its business.

Thanks for reading! We’ll see you Monday.

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