China Must Play Ball

Yesterday’s Daily Profit about Google’s (Nasdaq:GOOG) experience in China has raised some questions. Ray G. writes:
Anytime a government like the one China has can do whatever it pleases with any company in its country, the playing field is too much of a mine field to be attractive to me.
It is difficult enough for the individual investor to make money in any market but to try to do it in a country where one doesn’t understand the playing rules is sheer madness.
Good luck because you will need it.

I believe this question reveals a common misconception about China’s government. The simple fact is that China’s government can’t simply do "whatever it pleases". China has an export economy. It is dependent on countries like the U.S. Without foreign support, China can’t provide jobs to its people. It fails and collapses. In other words, China has to play ball.
In exactly the same way, China is dependent on foreign investment in the country. It must gain both the capital and the innovation of the West. Without that, again, China collapses. China must play ball.
And this is why Google’s stance on China’s attempts to "control" the Internet is so significant. I wrote yesterday that Google needs China more than China needs Google. But that’s not entirely true. If Google actually leaves China, it will be very embarrassing to China. And that’s more important than you might think.
Also don’t underestimate the will and desire of the Chinese people. They know who their government is. They know what’s going on in the Western world. And they want nothing more than to share in the wealth and freedom that we enjoy. Already, average Chinese are quoted in media saying that they don’t want Google to leave and that the Chinese government needs to make changes.
I don’t think for a minute that the Google saga is over. Further, I will be surprised if Google leaves. This is the tip of a very important iceberg. Google is not alone. The fact that it is standing up to China’s government will embolden other companies and countries. And the ultimate conclusion of the Google saga will probably make China an even more attractive investment opportunity.
*****China has come so far, I think investors sometimes forget that it only truly entered the global economy less than 10 years ago when it signed the WTO in 2001.
That’s not a long time. And to expect China to have become completely Westernized in 10 years is not realistic. That’s why the U.S. and Europe and other countries have been patient with China. Will this change? Absolutely. It’s changing now…
*****Would Warrren Buffett be invested in China if he thought his investment was at risk? Would Bill Gates sell Windows there if he thought the Chinese government was going to steal his source code and sell Windows itself?
The list of high profile Western investors and companies operating in China is very long. And it’s because of the tremendous potential of China. China has 300 million Internet users right now. In 2 years, that will be over 800 million. There is simply no way China can continue to censor the Internet. It’s a losing battle, and no doubt Chinese officials know this.
Investing in China isn’t madness. It’s one of the best decisions any investor can make. The gains my readers have already made from Chinese stocks had nothing to do with luck. And the gains we make in the future won’t be luck, either

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