Alex Lo
SCMP Columnist
My Take
by Alex Lo
My Take
by Alex Lo

George Soros’ case against investing in China is sickeningly hypocritical

  • If enriching the already rich while leaving the poor to their own devices is following the rules of capitalism, I say China will be better off not following – or ‘not understanding’ – them

I don’t know which is worse – greed or hypocrisy. But if I have to choose, I would pick greed any day.

And that really is what the fight over China as an investment target between Wall Street fund manager BlackRock and billionaire George Soros is all about. For clear-eyed investors, the choice should be clear. For American politicians, though, it’s a different matter.

Indeed, they should personally thank Soros for making a semi-plausible case against investing in China and preventing others from doing so, too: it’s for their own good, Soros would say.

Even if wrong and wrong-handed, the self-styled saviour of global democracy is still a lot smarter and more articulate than the average American politician and so has saved them from having to rack their brains to come up with almost convincing arguments against investing in the second, possibly already the largest, economy in the world.

BlackRock’s headquarters in New York, in the United States. Photo: Bloomberg

BlackRock’s investment case for China

BlackRock, which won a licence in June to become the first global asset manager to start a wholly owned onshore mutual fund business in China, calls on investors to increase their allocations to Chinese equities in their portfolios.

Previously, chairman and CEO Larry Fink wrote, “The Chinese market represents a significant opportunity to help meet the long-term goals of investors in China and internationally. It also provides us an opportunity to help address the challenge of retirement for millions of people in China.”

Sure, it’s self-serving, but they are Wall Street. They are telling clients to diversify into China, not to bet the ranch on it – investment 101! This is, after all, the economy that most mainstream international economists project will bypass, in absolute terms, that of the US by the end of this decade. Maybe you shouldn’t overweigh on China, but you shouldn’t under weigh either.

Billionaire investor George Soros. Photo: Reuters

Soros’ case against China

Admittedly, I am biased, but let me summarise so you will not miss his doublespeak: What’s good for the United States is good for the world; what may be good for China is actually bad for China and bad for everyone else, too.

He’s been on a roll firing off op-eds in the Financial Times and The Wall Street Journal, all in the same vein. I will reference all three op-eds from both publications below.

“Pouring billions of dollars into China now is a tragic mistake,” Soros wrote in The Wall Street Journal. “It is likely to lose money for BlackRock’s clients and, more important, will damage the national security interests of the US and other democracies.”

Note those words, “more important”. It’s perfectly valid to make an investment case against China, as you do with any investment. But it’s pretty clear even if there were a good case for it, Soros would still advise against it because it “will damage the national security interests of the US and other democracies”.

George Soros, BlackRock take opposing tracks on China’s potential

I am a simple-minded pundit and small-time investor. But isn’t capitalism all about putting money where you think it may be profitable? In that case, would it not be un-capitalist or anti-capitalist to try to deter people from investing in something perfectly legal – just because (1) it’s risky and (2) it’s against US foreign policy priorities, which incidentally, are highly questionable and dubious in the first place?

Soros criticises President Xi Jinping for regarding “all Chinese companies as instruments of a one-party state”, but now he himself criticises others for not recognising and falling in line with US foreign policy goals. Why doesn’t he just come out and say anyone like BlackRock investing in China is a traitor?

Soros provides a bit more economic rationale against putting money in China. “Xi does not understand how markets operate,” he wrote in the Financial Times. “As a consequence, the sell-off was allowed to go too far.”

“Allowed”? Maybe that’s exactly what an overheated and highly speculative market needs – a sell-off. China doesn’t have the “Xi Jinping put”, the way there is the “US Fed put”; it used to be called the “Greenspan put” but Ben Bernanke, Janet Yellen and now Jerome Powell have all followed him.

That is the asymmetric practice of not taking away the punch bowl when the market is in a bull phase, however excessive, but intervening massively to prop up the market when a general market collapse threatens.

Stock rout: will China learn its US$1 trillion lesson? Signs are unclear

If this is not unadulterated socialism for the rich and capitalism for the poor, I don’t know what is. Most Americans don’t have a real stake in the stock market. Just wondering, Mr Soros, how many billions did you make from the Fed’s unprecedented quantitative easing over the last decade, just like most other billionaires in the US?

If enriching the already rich while leaving the poor to their own devices is following the rules of capitalism, I say China will be better off not following – or “not understanding” – them. Or maybe the Chinese just understand them all too well.

Soros no doubt has a highly sophisticated understanding of the inner workings of capitalism; he built his phenomenal wealth precisely by exploiting inefficiencies and defects in international capital markets.

He attacked the British pound in the early 1990s, forcing it to devalue and to leave the then European Exchange Rate Mechanism. He and his then sidekick Stanley Druckenmiller shorted Asian currencies and equities that helped trigger the Asian financial crisis.

The currency Soros could not break is tempting hedge funds again

He later wrote erudite op-eds, as he does today, blaming those countries for causing their own woes and criticising governments, including Hong Kong’s, for intervening in the markets. I never blamed clever hedge funds for being clever enough to turn flawed government policies in Asia into their personal ATM machines. But if I were one of them, I probably wouldn’t rub salt into their wounds and claim I was doing them a favour by teaching them a lesson.

Well, a decade later, the US Federal Reserve and other major Western central banks did exactly just that, by intervening in the markets, and continuing today, only on an unimaginably larger scale and for a much longer time, after the last global financial crisis triggered by the US housing market collapse, and then the Covid-19 pandemic.

If you intervene in a one-off, you are not following the rules of the market. But if you turn the market upside down, you are being creative by rewriting the rules.

Don’t ever challenge the rules-based system, because I write all the rules.