Bearish on China Investment
by Travis Pantin
Thu, 17 Jan 2008 at 9:49 PM
"Ever since China became more open to commerce with the rest of the world, I have not understood the enthusiasm for investing in China," a blogger at Naked Capitalism, Yves Smith, writes.
Mr. Smith argues that the Chinese attitude toward foreigners is relatively hostile. "Push comes to shove, the Chinese would have few inhibitions about nationalizing foreign assets," he writes.
Washington economist Thomas Palley argues a similar point on his blog: "China's attitude to foreigners … is captured by the Great Wall of China, which provides a metaphor for China's long history of isolationism and xenophobia."
According to Mr. Palley, historical experience has made China very sensitive to foreign control. "As a result, China will never allow itself to be exploited by foreigners. For investors, the trouble is that China views making profits from the Chinese market as a form of exploitation," he said.
Mr. Palley explains that this bias has special relevance for American investors: So long as American investors in China serve a primarily non-Chinese market, China will allow them to earn large profits, he writes. "But once they start selling in the Chinese market, profits will likely shrivel under burdensome restrictions and theft of technology, ideas, and designs."
American investors should take a particularly cautious stance when it comes to China, Mr. Palley advises. "The lesson is that companies are likely to be disappointed regarding hopes of profiting from China's massive domestic market."
"Investors would be wise to remember all that glistens is not gold," he writes.
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