One of the main reasons behind our decision of launching ChinaFund.com and turning it into the comprehensive information source it is shaping up to become was represented by the worrying degree to which misinformation, half-truths and even downright fake news is spreading. This reality, in the context of the volatile (from more than one perspective) jurisdiction that is China risks ending up making investors decide to stay away from China altogether for reasons that have nothing to do with (economic) realities and thereby completely missing out on the various opportunities associated with the generational mega-trend represented by “all things China”… we can’t have that!
Does this mean China is a perfect jurisdiction?
Does it mean there are no pitfalls?
On the contrary, pitfalls abound in China compared to let’s say more established jurisdictions. But opportunities even more so, which leads us to the nuance worth highlighting: the fact that fake news drives less than thorough observers away from potentially career-altering opportunities and through our work, we do our best to fight this trend.
However, we want to make it clear that in this article, in the spirit of brutal honestly and non-cheerleading, we would like to address two types of fake news:
- Fake news originating FROM China, with Chinese state-controlled media outlets being (in)famous for propagating whichever information the authorities are interested in pushing. One of the top lessons learned by those who are getting accustomed to investing in Chinese assets and conducting research on them (among other things, by also following at least the English versions of Chinese media outlets) is to treat pretty much any tidbit of information originating from Chinese venues with a more than healthy dose of skepticism and fact-checking rigorously. We do not want to hide from the fact that Chinese media outlets misinform more so than even their most aggressive Western counterparts. On the contrary, we consider this aspect quasi-axiomatic and firmly believe your research process needs to account for that
- Fake news TARGETING China, which tends to be multiple orders of magnitude more difficult to identify. For better or worse, fake news that originates from Chinese media outlets is oftentimes so rudimentary that spotting it does not pose much of a challenge. In contrast, Western media outlets (both mainstream and alternative) can be far more subtle and adept at mixing in just the right dose of truth or half-truths so as to make their entire argumentative effort seem honest despite the exact opposite being true
What are the implications of both dimensions when it comes to the average investor?
At the end of the day, it matters little if we are referring to the first or second dimension, to fake news originating from China or fake news targeting China. From the perspective of the average investor, the name of the game is understanding that China represents a Wild West of sorts when it comes to more than just the usual suspects such as volatility, lack of legislative transparency and so on. In our case, it is more than safe to state that it also represents a Wild West entity when it comes to the fake news dimension.What investors do with this information is entirely up to them.
Our team simply chooses to deploy more skepticism with respect to China-oriented due diligence than when it comes to let’s say US asset-related due diligence, EU asset-related due diligence and so on.
Does this mean there is additional hard work involved?
While we would love nothing more than for there to be a perfect jurisdiction, one with the opportunities similar to those China puts on the table and a Western-level of legislative clarity (among many other things), we have been around the proverbial block long enough to know there is no such thing as a free lunch in the world of investing.
Simply put, you cannot expect to be on the receiving end of opportunities such as those you come across as an investor in Chinese assets without there being an (almost) symmetrical additional layer of uncertainty involved. “Almost symmetrical” is the operative term because if we were to put together a let’s say “opportunities to challenges” ratio for all nations, we firmly believe China would rank very high on such a list.
To expand on that, we believe the balance in China currently leans more so to the “opportunities” side than the “challenges” one. Not because there aren’t quite a few challenges involved that aren’t as problematic in the West (hint: there are) but rather because the additional opportunities more than make up for it, especially if we also factor in the scale of it all.
Does fake news about China abound?
Does fake news abound in China?
Once again, the answer is yes.
The ChinaFund.com team has explained on more than one occasion that we would much rather deal with evils we understand than black swan events which risk taking us by surprise. With that in mind, fake news is yet another variable we incorporate into our China-oriented equation, with there being nothing special about this particular dimension as far as we are concerned.
How we feel or don’t feel about fake news on an ideological level is of little importance in the grand scheme of things, with us having no issue whatsoever acknowledging that there are many aspects about China as well as other jurisdictions we are active in that we cannot control. Ultimately, the job of an investor doesn’t revolve around controlling variables in most cases, nor does it have to do with passing moral judgement. Jurisdiction A is what it is, Jurisdiction B is what it is and so on. We are here with one purpose and one purpose only in mind: being on the receiving end of the various opportunities China has to offer and enabling our clients to do the same.