Buffett in China

Wed, 09/29/2010 - 16:45

Yes, it would be great if Buffett and Gates came back from China with commitments from some Chinese billionaires to give half their wealth to charity. But every news story I've read throws cold water on this idea -- by stressing the Chinese lack of philanthropic tendencies, their clannish desire to keep to money within a family, the sheer novelty of staggering wealth in a so-recently communitarian society; in other words subtly suggests, without directly saying so, that this is about as likely to happen as Hong Kong is to return to British rule.

Paralleling the talk of low expectations for the philanthropic tour, a new rumor is circulating that Berkshire will buy some greater portion of BYD.

What are we to think of all this?

If Buffett and Gates can sow some seeds for the future, that's plenty good enough -- their philanthropic mission should be scored as a success. While it would be great if they bagged an actual pledge, Buffett is a deep believer that people have the right to do what they want with their own money (look how he defended his right to wait to give his own away for all those years). He's playing for the long game here. Ten years from now, if a dozen Chinese billionaires cite a lengthy dialogue with him and Gates as the reason they've made donations, that's better than if one person is strong-armed into doing it today.

Meanwhile, consider the psychological impact on Chinese business-owning families of meeting with Warren Buffett, who is idolized in their country. Imagine how they will feel about Berkshire Hathaway afterwards. When they're thinking about selling part of their companies, whose face will appear in their imaginations, hovering above a yuan sign?

There's probably nothing smarter Buffett could do to drum up investing opportunities for Berkshire than to go on this philanthropic tour. Is this a coincidence? No. Buffett, the master of efficiency, always has more than one reason for anything he does.

So will Berkshire buy in more of BYD? Probably. Buffett has wanted to make a Chinese acquisition, or two, or three, for a lnog time. And how Berkshire treats this investment is being closely watched in China as a test case.

 

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Wed, 10/13/2010 - 23:52 — Anonymous

China is beautiful.

China is beautiful.

Sat, 10/02/2010 - 23:07 — Anonymous

Buffett's timing

Do you think Buffett's timing had anything to do with the land violation that the government has made against BYD? WB is very good at 'political' appearances where he feels he can impact policy decisions. Originally, either the company or the government was suppose to bring a verdict on the injunction by end of Sept. (degree of penalty, and cost to BYD, and future precedent for capitalist violating PRC land rules in place for needed agricultural land). This propaganda play (Buffett, Gates, and Munger, but no Sokol this time? (with Becky Q. of course) seems unusually well played. Also absent is Li Lu (who may still be on the outs with PRC, though trying to get a work passport to get back in).

I think the untold 'visit statement' had a few plays:
1) See how the shop floor is doing, support management.
2) See what progress is being made during competitive market conditions
3) Let the PRC know that this is an 'indigenous Chinese' company with high integrity and has his full support (just like GS at the annual meeting) Hope here is PRC decision will be more of a hand-slap, but they have serious food issues so they are walking a difficult line also.
4) Chinese philanthropy - encourage giving, but more to meet elephants and learn about their businesses?

Disclosure: Own both BRK and BYD

Sat, 10/02/2010 - 10:33 — Al Wayslearning

Buffett in China

A discussion of Buffett's interest in China could possibly cover an entire new book.

On the issue Chinese billionaires and charity, one important point to note is that rich people in China (and Asia for that matter) don't necessarily want to show off their wealth. Partly for practical reasons of safety (kidnapped relatives and aggressive government officials are just two of the hazards) and partly due to a general dislike of showing off to others, there is a bias to donate quietly by many rich in Asia but of course there are exceptions who are happy to flaunt wealth. Although the tour may not have generated immediate results, it may still have had an impact on people to give more generously over the coming years. When giving away money they may simply prefer to act quietly rather than seeking headlines.

Regarding the issue of business investment opportunities, it is quite interesting that Buffett is spending a reasonable amount of effort to investigate opportunities in Asia. If we were to put pins on a map of all the company headquarters for companies in which Berkshire has invested, my guess is that the concentration in and around Omaha on the map would be obvious. This naturally reflects Buffett's emphasis on staying within his circle of competence. The small but growing cluster of pins in Asia, however, also shows that Buffett has made a conscious effort to expand his opportunity set. So far, his returns in Asia have been very impressive so it will be fun to see if he has found any new opportunities on this trip.

Regards,

Al

Fri, 10/01/2010 - 09:37 — Kempton

Special connections ("Quanxi")

Hi Alice,

Some of the New Money have gathered their wealth through their special connections ("Quanxi") to those with political powers in different level of governments in China, therefore, understandably, some of these New Money don't necessarily want to draw attention to themselves.

P.S. In a country with a flexible judicial system, having lots of money to hire good lawyers may not be enough to stay out of jail (or stay alive) when the next anti-corruption campaign starts when a different group of politicians come into power.

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