In September 2008, Warren Buffett’s Berkshire Hathaway acquired 10% stake in BYD, a pioneer in electric vehicle technology and production in China, for around US$232 million (around HK$1.8 billion or HK$8 per share). This morning, it is $79, slightly down from the record high of HK$83 a few days ago.
BYD’s share price followed the whole China stock market to ride through various up-and-down cycles, including the Lehman Brothers Subprime Crisis sell-off and the attacks from the so-called China Bears (e.g. Kyle Bass, Jim Chanos) over the past 10 years. Yet, Buffett’s investment never went under the water. With the automobile trend towards switching into electric vehicle consolidating all over the world, except the United States under the Trump administration, BYD provides Buffett a handsome return in less than a decade.
Many economists, financial analysts and hedge fund managers have been pessimistic about China’s economic development for more than 20 years in the sense that either the growth would slow down suddenly or the whole economy would collapse dramatically. One of the reasons for this view is the boring stock market in China which means, except for very few, most enterprises’ stock price elevation did not match with the rapid and steady growth of the whole economy. For example, the Shanghai A Share Index rose merely from 1000 in the 1990s to the present 3400 (a spike to 6000 before subprime crisis). So, the economic growth must be ‘fake’…….
They were wrong because they did not understand the ‘socialist characteristics’ of the Chinese stock market. It is fundamentally different from the Western stock market at least in one particular way, namely, it must follow the CCP’s leadership to serve the nation rather than to feed the big fat cats. Through direct and indirect interventions into the market by adjusting the money supply, company shares supply, provident funds’ portfolio composition, commodity pricings, state-owned enterprises’ policies, regulations monitoring the hedge funds’ trading patterns, commentators’ articles on official presses and etc, Beijing is determined to ensure that the stock market’s main roles are to serve the whole economy as well as the corporations’ healthy fund-raising needs.
The guiding influence from those vanguard economists in the 1980s remains sound and valid. One of them is Professor Wu Jinglian (1930- ). As a leading figure at the Chinese Academy of Social Sciences and State Council Research Centre, he was one of the drafters for economic reform during the Deng era. He helped lay down the blueprint to open the door for capitalism with courage as well as caution. He endorsed the need to welcome both investment and speculation, but also emphasized the need to prevent any market bubble from brewing at its infancy. What is more important is that the stock market is not a place to enrich people drastically, nor a soil for worsening the gap between the rich and the poor. If you want to become super-wealthy, entrepreneurship is the only officially permissible path.
BYD is one of them, and investors like Warren Buffett are welcome. But if you want to make huge speculative profit by short term trading? Sorry, not here in China.
The opinions expressed are those of the author, and not necessarily those of China Daily Mail.