Date: 2025-03-14 Page is: DBtxt003.php txt00020963
Geopolitics
Investment in China
BlackRock’s China Blunder ... Pouring billions into the country now is a bad investment and imperils U.S. national security.
PHOTO: DAVID GOTHARD
Original article: https://www.wsj.com/articles/blackrock-larry-fink-china-hkex-sse-authoritarianism-xi-jinping-term-limits-human-rights-ant-didi-global-national-security-11630938728
Burgess COMMENTARY
When it comes to international finance, I take George Soros seriously. My own point of view is that the economic success of China over the past several decades should be applauded, but we should also have a good understanding of what enabled this and what risks are going to emerge because of this. I also like to remember that a very large amount of the essential underlying investment that made progress in China possible came from private investors based in the USA. People ... including a lot of younger economists ... seem to ignore the massive disruption that rocked the global economic system in the 1970s, starting in 1973 when the OPEC oil cartel succeeded in raising the price of a barrel of crude oil from $3.50 to $13.50. I wrote at the time that this was the biggest economic event in all of history, and I stand by that observation. But why did it do so much damage to the US economy? This was because the US economy made profligate use of energy which was low priced to offset the high wages being earned by American labor. During the later years of the 1970s the USA experienced 'cost-push' inflation and corporate profits tanked. Since the early 1980s the United States has relocated its product sourcing from companies in the United States to companies located in other countries with most located to China. This has funded the building of most everything in China, and improved quality of life for many if not most of the people in China. This supply chain still dominates the US economic situation but has done immense economic damage for many, if not a majority, of working people in the USA.
The economic power of China is a huge risk for the United States ... and it will almost certainly bring the US to its knees at a time of China's choosing unless the US addresses the problem quietly and quickly.
Peter Burgess
By George Soros ... Mr. Soros is founder of the Open Society Foundations.
Sept. 6, 2021 11:42 am ET
BlackRock, the world’s largest asset manager, has begun a major initiative in China. On Aug. 30 it launched a set of mutual funds and other investment products for Chinese consumers. The New York-based firm is the first foreign-owned company allowed to do so. The launch came just weeks after BlackRock recommended that investors triple their allocations in Chinese assets. This will push billions of dollars into China. “The Chinese market represents a significant opportunity to help meet the long-term goals of investors in China and internationally,” BlackRock Chairman Larry Fink wrote in a letter to shareholders.
BlackRock takes its responsibilities for its clients’ money seriously and is a leader in the environmental, social and governance movement. But it appears to misunderstand President Xi Jinping’s China.
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. Mr. Xi faces an important hurdle in 2022. Many believe he intends to overstep the term limits established by Deng Xiaoping and make himself ruler for life. He is bound to have enemies, whom he must prevent from uniting against him. Thus, he needs to bring to heel any entity rich enough to exercise independent power.
This process has been unfolding in the past year and reached a crescendo in recent weeks. It began with the abrupt cancellation of a new issue by Alibaba’s Ant Group in November 2020. Then came the disciplinary measures against Didi Chuxing after it floated an issue in New York in June. Things culminated with the banishment of U.S.-financed tutoring companies from China. This had a profoundly negative effect on offshore markets, hammering New York-listed Chinese companies and shell companies. Chinese financial authorities have tried to reassure markets ever since.
The leaders of Western asset-management firms, such as Stephen Schwarzman, co-founder of investment firm Blackstone, and former Goldman Sachs President John L. Thornton, have long been interested in the Chinese consumer market—and in the prospect of business opportunities dangled by Mr. Xi.
BlackRock is only the latest company trying to engage with China. Earlier efforts could have been morally justified by claims that they were building bridges to bring the countries closer, but the situation now is totally different. Today, the U.S. and China are engaged in a life and death conflict between two systems of governance: repressive and democratic.
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.
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