In this particular case I’m talking about BlackRock and, speaking of particular cases, it surprises me to say this but I agree with George Soros’s recommendations in his op-ed in the Wall Street Journal:
The firm seems to have taken the statements of Mr. Xi’s regime at face value. It has drawn a distinction between state-owned enterprises and privately owned companies, but that is far from reality. The regime regards all Chinese companies as instruments of the one-party state.
This possible misunderstanding could explain BlackRock’s decision, but there may be another explanation. The profits to be earned from entering China’s hitherto closed financial markets may have influenced their decision. The BlackRock managers must be aware that there is an enormous crisis brewing in China’s real-estate market. They may believe that investment funds flowing into China will help Mr. Xi handle the situation, but the president’s problems go much deeper. China’s birthrate is much lower than official statistics indicate and Mr. Xi’s attempts to increase it have made matters worse. The president recently launched his “Common Prosperity†program, which is a fundamental change in direction. It seeks to reduce inequality by distributing the wealth of the rich to the general population. That does not augur well for foreign investors.
Pouring billions of dollars into China now is a tragic mistake. It is likely to lose money for BlackRock’s clients and, more important, will damage the national security interests of the U.S. and other democracies.
It wasn’t Lenin was said it but it’s true nonetheless: capitalists will sell the rope used to hang them. Here’s Mr. Soro’s conclusion:
The BlackRock initiative imperils the national security interests of the U.S. and other democracies because the money invested in China will help prop up President Xi’s regime, which is repressive at home and aggressive abroad. Congress should pass legislation empowering the Securities and Exchange Commission to limit the flow of funds to China. The effort ought to enjoy bipartisan support.
BlackRock’s moves are a near-perfect example of how individuals and companies make foreign policy and the foreign policy isn’t necessarily aligned with U. S. interests. And none of this is new. I recall standing up more than 40 years ago in the boardroom of my Fortune 500 employer at the time, as they offered me the leadership role in the technical group they were planning to put in China and explaining to them the facts about dealing with China. They didn’t know the basics, e.g. that they would be required to have a Chinese partner, technology transfer, that the yuan is not convertible, etc. All they could see were dollar signs and the “market of one billion people”. Everything I warned them about was precisely what transpired. The differences between now and then are that everything is so much more obvious than it was then, that the Chinese economy is an order of magnitude bigger than it was, and that the present Chinese authorities are more publicly assertive.
“The BlackRock managers must be aware that there is an enormous crisis brewing in China’s real-estate market.”
I guess Mr. Soros doesn’t understand China either. If China were a capitalist society, that statement might be true or not. But in China’s socialist economy (with a Chinese face, of course), it is false. The so-called real estate owners/investors do not bear the same kind of risk that they would in the US. The Chinese government, not economics, decides what fails and what succeeds.
The same is true for the whole Chinese economy and each of its parts. Ultimately the CPC decides what is a success and what is a failure. So far they have been extremely good at their decisions.
I think the bigger crisis is the recent handling of equities.
Pretty much agree with you here. No one forced US companies to go to China and then give up all of their trade secrets. Our corporations did that in order to make money. The consumer has seen a small benefit but most of it has gone to the investor class. Now we have Blackrock doing the same. The CCP is not at risk but Xi could be. This would help Xi and does little for anyone else, except maybe Balckrock investors until it goes bad. Maybe IBGYBG?
Steve