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Charlie Munger's wrong: Should you be uncomfortable investing in China?
The Chinese government’s drive for purification is antithetical to free and open markets and, at worst, results in fundamental abuses of basic human rights.
By Paul Rivett Chairman and Co-Proprietor of Torstar July 5, 2021
By
One of the greatest investors of our time, Charlie Munger, vice-chairman of the storied Berkshire Hathaway, was recently quoted saying the Chinese government “did the right thing” by reining in Jack Ma.
Munger is referring to the fact that Jack Ma, the founder of e-commerce giant Alibaba Group, has been restricted by Chinese authorities from speaking publicly since he criticized regulators last October.
For Munger, it would be beneficial for the United States to emulate the “financial part” of the authoritarian Chinese system. Alibaba stock price has been under pressure since the restrictions on Ma began.
Munger is one of the smartest living investors but his views on the Chinese government are wrong and dangerous. In the short term, unilateral repressive action by the authoritarian Chinese state clearly has an immediate negative impact on shareholder value. Longer term, any level of support for the Chinese government’s punitive conduct will only embolden the state to take future repressive action.
Last week, under similar circumstances to those seen with Jack Ma and many other critics of the Chinese government, the last major independent newspaper organization in Hong Kong, Apple Daily, was forcibly closed, its assets seized and its founder, Jimmy Lai, and many journalists taken into police custody. The stock price of Next Digital, the publicly traded owner of Apple Daily, has suffered from these actions.
A news organization controlled by the Chinese government, Wen Wei Po, stated “it is good for Hong Kong that Apple Daily came to a dead end, and it is the beginning of the purification of the Hong Kong media ecology.” In the case of both Jack Ma and Jimmy Lai, this “purification” or censorship of thought and discussion should not be condoned, even partially, by anyone supportive of free and democratic societies, particularly a revered investing figure like Munger. Foreign investors suffer while Chinese government-backed companies benefit from these abuses and take advantage of increasing restrictions on freedom for their financial gain. The Chinese government’s drive for purification is antithetical to free and open markets and, at worst, results in fundamental abuses of basic human rights. We have seen this with the Chinese government’s abuse of the rights of Tibetans, Uyghurs and now citizens of Hong Kong. Taiwan may be next.
The lone man in Tiananmen Square cannot be forgotten. The free world now faces the very real danger of being driven over by the Communist Chinese government’s quest to purify. To some extent, those of us in free societies did this to ourselves. We buy cheap goods from China. We invest in Chinese-sponsored companies. We turn a blind eye to human rights violations. We grow accustomed to our citizens being imprisoned and tortured (Michael Kovrig and Michael Spavor have been imprisoned for nearly three years now).
While many of us are trying to buy fewer goods produced in China, we should also consider looking into our mutual fund and ETF investments for exposure to Chinese companies and consider reducing exposure to Chinese government repression.
