Famed short seller Jim Chanos made headlines with his recent predictions about China. Some of his statements included a description of China being “Dubai times 1000”. He stated that the Government inflated GDP numbers, and there is too much Government control. Whether he is right, only the future will tell. Many people think China is “the new economy” like Japan was in the 1980s. However, there are clear differences between the countries and only the future will tell if Chanos is right. However, Chanos is right for a different reason regarding the dangers of investing in China.
A story broke yesterday that Google announced that it was pulling out of China, in part due to Government involvement and censorship. Google currently receives an estimated $600 in annual revenue. This number would likely grow rapidly in the coming years as people in the worlds largest, and one of the fastest growing economies starts using the internet more.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
Clearly if Google is willing to forgo this excellent opportunity, the situation must be intolerable. Google must feel that it is not worth the money it makes and will make in the future, if the Government interferes with their operations.
This brings me to the main point of my article. I do not know if China is in a bubble that will burst, however I am worried about the voices I hear proclaiming China is a sure thing. As I noted earlier the Japanese experience has shown us that there is no such thing as a sure investment. I can think of many problems China will face in the future, such as an aging population and a disproportionate percentage of men to women, due to its current policies. However, leaving that point aside the real problem for investors is investing in a country that is not democratic and interferes with free enterprise.
Currently there is a lack of trust in America for the regulator agencies. This distrust is large due to Governmental agencies failure to prevent the financial crisis and the Bernie Maddof scheme. However, we take for granted that our country allows free enterprise, and there are laws in place to protect creditors and bondholders.
These protections do not exist in the semi-dictatorship of China. I do not feel comfortable investing my money in countries where there is large Government interference. Google has proved today the dangerous of investing in China, and the fact that there is no such thing as a sure thing. This is especially true in a country that does not have a legal system affording investors rights like those that they have in America.