Whitney Tilson follows up on his previous comments, which are a follow up on his original comments. Tilson was accused of being racist against Chinese people, after he railed against a Chinese website, which stole $1,000 from his father. Tilson claims that he does not think Chinese ladies are ‘crazy.’ Tilson believes that China is a kleptocracy, as John Hempton has previously stated. Below are Tilson’s comments obtained by ValueWalk. Tilson responds to these comments as well as to another issue he addressed, high frequency trading (HFT). HFT, has come under criticism from Michael Price, Leon Cooperman, Jim Chanos, Mark Cuban and many other famous investors. Tilson notes that the Indian stock Market crashed 16% in a matter of moments, several days ago.
I was not surprised that some folks took offence at the comments about China I included in my last email (I also got some kudos). It was a deliberate risk…
To be clear, there’s much I admire about China: the people are the hardest working, most capitalistic, most focused on education I’ve ever seen, their contributions to human development rival any civilization, and there’s never been a faster movement of more people out of abject poverty than in China in the past few decades. But as John Hempton persuasively argues below, it’s a kleptocracy and people need to know this and call them out on it.
1) Here’s the first of two comments:
I’m cringing reading this.
Chinese ladies are “crazy”? Chinese children are “selfish”? Because of the cultural revolution? What is this gibberish in your normally high-quality newsletter?
Investment into and business with China is a big topic. There is a wealth of serious thinking by serious people on the topic. And lots of smart investors are doing incredibly well in China.
But they do know how to deal with fraudulent companies. Governance practices. Accounting accuracy. Regulatory murkiness. Politicized economics. Legal / contract structures. Management behavior at SOE’s. Management behavior in private companies. And so on.
I don’t care about pc stuff. But you just broadcast the dumbest commentary on China I have ever seen by a serious investor. I’m still cringing.
As for the web company that ripped you off, that is a shame. But to be honest nobody in China would have bought online in that way. When you buy online in China, you normally pay cash on delivery (360buy). Or the money is held in escrow until cleared by the buyer (alibaba). If you pay first and wait for the delivery, you will eventually get ripped off. It is common knowledge.
Similar to it being common knowledge in New York that you do not leave your front door open all day. Eventually you will get robbed. It is just common practice in the environment.
Fraud is a problem in China for sure. But actually online purchases is an area where things are quite good. You have ratings for buyers and sellers, escrow accounts under the control of the buyer and real-time online communication with other shoppers. In fact, many people prefer to buy online because it is considered safer than brick and mortar (Tmall has 140k merchants online and Taobao has the world’s largest call center).
I buy from Chinese websites all the time and have never had a problem (but I would never pay first).
Note: Alibaba sells about 40k products per minute. And Chinese e-commerce will surpass US e-commerce in total dollar-terms by 2014-2015. That seems inconsistent with the fraud-ridden picture described.
Anyways. A bit of a rant. otherwise a big fan of your emails.
2) Here’s the second:
That first email over-generalizes and perpetuates a lot of stereotypes. I won’t say it’s racist but it’s pretty close. You couched it as “highly politically incorrect” so I have a feeling your gut also told you it was over the line. If someone substituted “Jewish” or “black” for “Chinese” in that email, I doubt you’d have forwarded it to hundreds (thousands?) of people.
The fact that the email was written by a Chinese American (who apparently has some very skewed views) does not legitimize his biased statements. By circulating the email widely, you’re giving it your implicit endorsement and spreading silly notions like this:
“. . . many of the Chinese that have left China in the last 10 years suffer from the same problems afflicting China today: rich, greedy, fake, shallow, cheaters, etc”
“To be clear: I’m not saying EVERY person in China is out to screw people, but when the system typically requires paying bribes, kissing ass, and lying, of course this behavior becomes ingrained. ”
“Their kids tend to be selfish and greedy as well (the apples tend to fall close to the tree), and are under tremendous pressure to win at all costs. Tiger moms aren’t a myth – Asians push education to a whole new level – but there’s a lot of cheating here as well. ”
“Lastly, the ladies from China are a shocking set of crazies.”
Like that email’s author, I’ve also had nearly 40 years to watch the actions, thoughts, and behaviors of multiple generations of Chinese individuals. The ones I know who have left China (in the last 10 years and earlier) are among the most industrious and ethical people I know. Munger, too, has talked many times about his admiration for this new wave of Chinese. Their kids get into the top universities not because they cheat or try to win at all costs, but because academics are given high priority. Lastly, I seriously doubt that the divorce rate among this “shocking set of crazies” is any different than the US divorce rate; there is no evidence to support the notion that the women are crazies.
3) For more on China, see the two posts of John Hempton of Bronte Capital (who, incidentally, will be speaking at the next Value Investing Congress in Las Vegas on May 6-7). He calls China a kleptocracy, which Wikipedia defines as follows:
Kleptocracy, alternatively cleptocracy or kleptarchy, (from Greek: ??????? – klept?s, “thief” and ?????? – kratos, “power, rule”, hence “rule by thieves”) is a form of political and government corruption where the government exists to increase the personal wealth and political power of its officials and the ruling class at the expense of the wider population, often without pretense of honest service. This type of government corruption is often achieved by the embezzlement of state funds.
Kleptocracies are generally associated with corrupt forms of authoritarian governments, particularly dictatorships,oligarchies, military juntas, or some other forms of autocratic and nepotist government in which no outside oversight is possible, due to the ability of the kleptocrat(s) to personally control both the supply of public funds and the means of determining their disbursal. Kleptocratic rulers typically treat their country’s treasury as though it were their own personal bank account, spending the funds on luxury goods as they see fit. Many kleptocratic rulers also secretly transfer public funds into secret personal numbered bank accounts in foreign countries in order to provide them with continued luxury if/when they are eventually removed from power and forced to leave the country.
Kleptocracy is most common in developing countries.