‘Global investors are shocked to have discovered that China is run by Communists.’

• Sounds like a line from New Yorker humorist Borowitz.

Go ahead MNC CEOs, make fun of those dumb investors who got tricked by China.

• But be aware: Your turn on the hot seat is coming.

Why? Whether institutional investors or Fortune 500 CEOs: ‘For decades, foreign investors [and CEOs] have told themselves a comforting story,’ writes Matthew Brooker of Bloomberg [excerpts below].

• ‘China was no longer truly Communist, after late paramount leader Deng Xiaoping embraced markets in the late 1970s and kicked off the country’s spectacular economic rise.’
• ‘The wealth and growth generated by capitalist techniques had converted the government and people.’
• ‘While the ruling party continued to wrap itself in the rhetoric of Communism, its members knew they were paying lip service to a bankrupt ideology, or so the thinking ran.’

‘The era of such creative ambiguity is over.’

• ‘With a true believer holding the reins of power, there can be no doubt that China’s rulers mean what they say.’

The good news: Investors’ travails are flashing red lights for CEOs.

• They have a bit of time to take a big step back to thoroughly reexamine their assumptions about China and China business.
• And in so doing better prepare for the risks that lie ahead.

Again investors are showing the way to begin the reassessment. In what sounds like another Borowitz quote:

• 'Shocked Investors Scour Xi’s Old Speeches to Find Next Target.'

And they are on the right track. ‘These sudden regulatory shifts have thrown asset managers across the world into a frenzy of effort to understand and explain how prospects for investors in the second-largest economy have changed.’

• 'The most lucid and logically coherent explanation also happens to be the simplest: Take China’s Communist Party at its word.'

'Some investors realized they hadn’t paid enough attention to the country’s most important man: President Xi Jinping.’

• Investors have - in record time - realized that ‘If you are more aware of what the Chinese have been communicating all along, you know what they will do,’ as Jason Hsu, founder and chief investment officer of Rayliant Global Advisors, says.

If you’ve been following the media reporting on investor reaction (read, shock) to recent events, this is the capital markets' equivalent of turning on a dime.

• I truly admire institutional investors' capacity to readjust their perspectives so quickly.
• Something I strive for but seldom succeed at.

A good example of how we should rethink our assessment of Mr. Xi’s intentions comes from ‘'China Wants Manufacturing—Not the Internet—to Lead the Economy,' by Greg Ip of The Wall Street Journal [excerpts below]:

• ‘In Xi Jinping’s estimation, technology comes in two varieties: nice to have, and need to have.’

‘Social media, e-commerce and other consumer internet companies are nice to have. But in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing.’

• ‘By contrast, Xi thinks the country needs to have state-of-the-art semiconductors, electric-car batteries, commercial aircraft and telecommunications equipment to retain China’s manufacturing prowess, avoid deindustrialization and achieve autonomy from foreign suppliers.’

‘Mr. Xi described these differential priorities in a speech [there’s that speech thing again] published by the party journal Qiushi last year.’

• ‘He acknowledged the online economy was flourishing, and said China “must accelerate construction of the digital economy, digital society and digital government.” ‘
• ‘ “At the same time, it must be recognized that the real economy is the foundation, and the various manufacturing industries cannot be abandoned.” ’

Institutional investors are now paying attention to what Mr. Xi and his colleagues are saying because, as the rapid reforms in the consumer internet sector show: When they speak, they mean it.

• Now it’s up to us to challenge our assumptions about the sectors that are nearest our interests.

All by saying, the blinders are off.

• From here on, if we miss the signals right in front of us, it’s our fault.
• We can’t say China didn’t warn us.