Warren Buffet bails as Chinese economy flounders, tensions rise

Warren Buffett paid $230 million for a 10 percent stake in Tesla competitor BYD with great fanfare. He had been in the future and it was China.

Now, 14 years after his initial investment in China’s leading electric vehicle maker, Buffett is quietly pulling the plug on this and his other China games. It’s worth asking why.

After all, this is the same man who turned a small investment in a failed New England textile company called Berkshire Hathaway nearly 70 years ago into a fortune nearly $100 billion today. If Buffett dumps China, it means he believes the risk/reward tradeoff has flipped decidedly in the red.

Here’s my take on what the aptly named Oracle of Omaha thinks.

The 20th Congress of the Chinese Communist Party (CCP) will open in a few days. Party leader Xi Jinping will reportedly be “elected” for a third five-year term, but in reality he will limit his control of China for life.

Buffett, who is worth nearly $100 billion, paid $230 million for a 10 percent stake in BYD almost 15 years ago.
Buffett, who is worth nearly $100 billion, paid $230 million for a 10 percent stake in BYD almost 15 years ago.
AP
Buffett and Bill Gates take the stage to welcome BYD to Beijing in 2010;  Buffett's initial investment is now valued at around $7.5 billion.
Buffett and Bill Gates take the stage to welcome BYD to Beijing in 2010; Buffett’s initial investment is now valued at around $7.5 billion.
AP

Like the late Chairman Mao, whom he greatly admires, the 70-year-old dictator is a radical communist ideologue. That signifies his decades-long drive to concentrate all power in the hands of the state — so to speak his Hands–will not only move on, but accelerate. China’s prosperous private sector is being bled dry and the deadly onslaught on society’s most productive members – the likes of Alibaba founder Jack Ma – will continue.

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The same goes for Xi’s crazy Covid-zero policy.

Following the likely lab leak in Wuhan, Xi announced that he was personally overseeing the pandemic response. And the policy he chose to try to stop the spread of the coronavirus was to lockdown entire cities, even provinces.

Chinese leader Xi Jinping will further consolidate his grip on all elements of Chinese finance and politics during the upcoming 20th Chinese Communist Party Congress.
Chinese leader Xi Jinping will further consolidate his grip on all elements of Chinese finance and politics during the upcoming 20th Chinese Communist Party Congress.
REUTERS

With the lockdowns so closely associated with Xi himself, no one in China has dared to criticize these fruitless efforts to eradicate the coronavirus, even as they continue to wreak havoc on the economy. Indeed, immediately imposing a strict lockdown as soon as a handful of Covid cases are discovered has become almost a test of loyalty for communist officials, a pledge of allegiance to the new Chinese emperor.

Even worse for China’s economic prospects is a new series of articles in the people’s newspaper suggests the deadly lockdowns, which are arguably killing more people than Covid, will continue for a number of years. The official press has struggled to stress the correctness of the Chinese response, despite the abandonment of every other country on the planet.

Under Ji's oversight, China remains the only major nation still in lockdown, a move that is stifling the economy and further eroding civil liberties.
Under Ji’s oversight, China remains the only major nation still in lockdown, a move that is stifling the economy and further eroding civil liberties.
STRINGER/EPA-EFE/Shutterstock

Mainly because of these two “Cs” – Communism and Covid – China’s economy is in crisis. Buffett is no doubt aware that official statistics show the country’s growth has halved — and the real situation is no doubt much worse. The real estate sector is broke, banks are failing and Chinese consumers are tightening their belts. The Chinese economy is heading for a very hard landing as political controls tighten and Covid lockdowns continue.

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Even absent these domestic political headwinds, Buffett is no doubt also considering recent US actions that will continue to hamper China’s technological and military advances. Under the bipartisan CHIPS Act, the US just imposed new export controls on semiconductor chips — not just domestically made, but those made globally with US equipment — that will make it much harder for China to successfully produce cutting-edge chips-art Electric vehicles, cell phones or computers in the future.

Since the pandemic, China's economic growth has halved as workers are stuck at home and unable to keep the country's factories running.
Since the pandemic, China’s economic growth has halved as workers are stuck at home and unable to keep the country’s factories running.
ALEX PLAVEVSKI/EPA-EFE/Shutterst

Any such attack on Taiwan would dramatically accelerate the decoupling of the US and Chinese economies. The result, if not Armageddon, would be the division of the world into two competing blocs, with the US and Europe on one side and a hostile China-Russia axis on the other. The value of Buffett’s investments in China would plummet.

China recently demonstrated its military might with a series of menacing overflights over Taiwanese territory, which the government considers an untouchable part of China.
China recently demonstrated its military might with a series of menacing overflights over Taiwanese territory, which the government considers an untouchable part of China.
AP

Such sanctions, not seen since the days of the Cold War, raise the specter of open conflict, especially as they will also deny China the ability to import Taiwan-made chips. If Xi wants the island’s chips, he must take the state-of-the-art chip manufacturing facilities by force. His escalating rhetoric and increasingly aggressive actions — he’s recently sent drones and missiles over Taiwanese territory — suggest he’s contemplating just that.

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Even without open conflict, Western public sentiment has already turned sharply against China. It’s not just that Beijing likely started a pandemic on the world, killing millions and causing trillions of dollars in economic damage. The Uyghur genocide, the crushing of a free Hong Kong and his support for the Russian invasion of Ukraine have all increasingly hardened stance on China. About 82 percent of Americans now have negative opinions of the East Asian giant, with anti-China sentiment running even higher in Australia and Japan.

Recent US sanctions have made it much harder for China to import Taiwan-made goods like these semiconductor chips, which are crucial components of China's electric car industry.
Recent US sanctions have made it much harder for China to import Taiwan-made goods like these semiconductor chips, which are crucial components of China’s electric car industry.
REUTERS

America’s big stores may still be crammed with cheap Chinese goods, but those in the market for an expensive electric vehicle probably don’t want to support a genocidal regime that’s openly hostile to America. Add to that the growing anti-CCP sentiment in the US, and BYD could be locked out of the US auto market by consumer boycotts, if not tariffs, in the future.

Warren Buffet has many reasons for taking his money and running away.

And as always, where Buffet leads, others will follow.

Steven W. Mosher is President of the Population Research Institute and author of The Politically Incorrect Guide to Pandemics.

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