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It’s time to speak out against China’s authoritarian policies

20112019_China

It’s time to speak out against China’s authoritarian policies

Sorry to let ethics creep into my blog, but sometimes you just have to make a statement.  You see, right now, China is carrying out highly repressive policies reminiscent of George Orwell’s Nineteen Eighty-Four.  Given China’s global ambitions, these are scary times not just for Chinese people, but for all people who value freedom and democracy.

 “A failure to defend democracy for the sake of economics will ensure we lose both.” Roger Montgomery

 

“Read history! Read history! Read history!” Charlie Munger

Today’s press is awash with revelations that China, under the leadership of Xi Jinping, may be engaging in an early stage of ethnic cleansing, reminiscent of the Anschluss – the annexation of Austria by Nazi Germany in 1938 and the subsequent ‘rounding up’ of the Jewish people of Austria.

The Sydney Morning Herald reports:

“The 400 pages of documents leaked to The New York Times expose the thinking behind the crackdown [against Muslim minority groups in China’s western Xinjiang province], including Xi’s call for an all-out struggle using “organs of dictatorship”, “a period of painful, interventionary treatment” and showing “absolutely no mercy”. The CCP’s top official in the province commanded a “smashing, obliterating offensive” and urged colleagues to “round up everyone who should be rounded up”.

“Included in the trove of documents is a directive on how to handle students returning home to Xinjiang to find their relatives detained. Officials were advised to tell students their relatives were receiving “treatment” for exposure to the “virus” of extremist Islam that had “infected” them, while acknowledging they had not committed any crimes. Students were to be warned their behaviour could affect their relatives’ time in detention.”

Western society repeatedly turned its back on the Jewish community of Austria in the late 30s and early 40s and today, lest history repeat, we must not make the same mistake. At that time, the western world ignored the cries of the Jewish people of Austria and whether for economic purposes of from fear, we failed to respond appropriately.

Paul Keating’s comments that Australia’s foreign policy towards China lacks any sense of “strategic realism” is precisely the attitude that created global inertia in the late 1930s, and rendered the west impotent, during the rise of Nazi Germany. Keating’s comments represent the first step in a failure to defend democracy for the sake of economics.

Such an attitude will ensure we lose both.

China’s ambition for a “common destiny for mankind” has the potential to become a horror show for us all.

Foreign Policy’s Tanner Greer writes: “White papers spell out Chinese ambitions to be the primary strategic presence not just on the East Asian periphery but in Africa, the Indian Ocean, and the Southern Pacific. China’s leadership claims that it has core economic interests as far abroad as Europe, Latin America, the Arctic, and outer space. With these economic interests come road maps for securing Chinese relationships or presence in each region.

“By 2050, the Chinese aim to have a military “second to none,” to become the global center for technology innovation, and to serve as the economic anchor of a truly global trade and infrastructure regime—an economic bloc that would be unprecedented in human history. In their speeches and documents, Chinese leaders call this vision of a China-centered future—a future where a U.S.-led system has been broken apart and discarded—a “community of common destiny for mankind.” That ambition debunks the myth of a multipolar future: China seeks dominance, not just a share of the pie.”

 “Organs of Dictatorship”

In an April 18, 2019 article in The Australian Financial Review Michael Smith wrote:

“Shanghai | An announcement fills the carriage of the high-speed train from Shanghai to Beijing. Its message has, at least to the western ear, a distinct Orwellian overtone.

“Dear passengers, people who travel without a ticket or smoke in public areas will be punished according to regulation and the behaviour will be recorded in the individual credit information system. To avoid an impact on an individual’s credit, please follow state law and railway regulations.”

“The announcement, broadcast in Mandarin and English, refers to China’s proposed social credit system, a mechanism to rate every individual in the 1.4 billion-strong nation. It will determine if they are rewarded or punished depending on how they behave.”

Think of Australia’s driving licence demerit system applied to every aspect of life or the first episode in season three of Netflix’s Black Mirror series set in a world where people rate each other from one to five stars for every interaction they have.  The results adversely impact the socioeconomic status of lead character Lacie Pound.

China’s social credit system, will be ‘tested’ 2020, and in many ways the results will be little different to India’s hierarchical caste system, which of course is a primordial disaster in the eyes of any democratic society.

China’s system assigns each citizen a score which will determine whether money can be borrowed or whether children are permitted to attend more prestigious schools”. Lower scores result from defaulting on loans and most tellingly, from criticizing the ruling party.  Perhaps a lower score for criticizing the ruling party will be seen by China’s citizens as a step forward from being shot and disappearing.

In China’s existing Zhima Credit program, a private credit-scoring rating associated with Alipay, users are assigned a score between 350 and 950. High scores allow users to rent vehicles without a deposit or pay to skip hospital queues. Wired Magazine’s Mara Hvistendahl used the system, immediately receiving a “poor” rating of 550. Hvistendahl was required to pay a $30 deposit prior to renting a bike for 15 cents, and had to pay deposits to stay in hotels, rent GoPros or even free umbrellas. Hvistendahl wrote: “I belonged to the digital underclass”.

In his The Australian Financial Review article, Smith quotes Shi Xinzhong, a law professor at Beijing’s Capital Normal University: “There is a crisis of trust and a crisis of honesty. This is a side-effect of the market economy.”

Evidently, it’s the western world’s creation of capitalism that has caused China’s deficit of honesty.

Personality Disorder; Noun, Psychiatry.

A person with personality disorder may blame other people for problems in their life.

Blaming the market economy is unsubstantiated Chinese propaganda. In this global study of honesty, the citizens of just about every country in the world are more honest and the vast majority of those citizens live in market-based economies.

China has a word for honesty and integrity – chengxin. The problem is not capitalism or a market-based economy. The problem is China and a totalitarian and unaccountable dictatorship.

Of course, China’s sales pitch for its social credit system is that it’s a necessary service for individuals to help them deal with the many strangers they meet every day.

Shi notes, “We are moving into a society where you are dealing with strangers every day. [Chinese] People are tempted not to obey rules or act morally when they are dealing with strangers. To build an honest society we need to make sure there are penalties for dishonest behaviour.”

What penalties will the Chinese regime face for their dishonest treatment of their Muslim community?  One wonders whether a “common destiny for mankind” is precisely what we’ll receive for failing to register our abhorrence.

For more on this topic:

Can American Values Survive in a Chinese World?

Kyle Bass Decries Military Retirees Funding China ‘Nightmare’

An Orwellian nightmare or a fix for China’s trust deficit?

INVEST WITH MONTGOMERY

Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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19 Comments

  1. MICHAEL BARRETT
    :

    Roger, good on you for writing this insight. Business and politics are inextricably mixed and there have been way too many people in Australia (and other western nations) conveniently pushing the view that in the case of China the two systems are seperate from each other. The Chinese political system allows the business system to be used as a political weapon (and vice versa) and the Muslim minority in western China is on the receiving-end of this now. Others will follow.
    Charlie Munger’s quote is particularly apt. In the context of Australia, the current discussion about China has similarities to the Australian discussions about Japan in the years leading up to WW2.
    For those who suggest politics has no place in your role as investment manager, I say that I would rather have you advise me on the misuse of technology by China than not, as western markets will eventually reject the use of this technology, which will in turn affect my investment performance.

  2. Thanks Roger,

    Well spoken! I echo Pascal’s sentiment. Integrity and Christian teachings require us to place human rights above investment returns. It is very hard to argue against boycotting a system that is being used to oppress fellow human beings on a scale not seen since Nazi Germany.

  3. This is the same China that believes a frail, old Tibetan holy man that preaches peace is somehow a threat to their sovereignty…

  4. The Kyle Bass thesis that China has a USD shortage and is plugging it with investment flows from US pension funds is something I have been interested in for a while now. Are we in Australia not a major beneficiary of these USD flows. Is that not what is propping up commodity prices which in turn is the only reason our economy is not in serious trouble right now?

  5. Hi Roger,

    Happy to hear that you have called out the ‘elephant in the room’. We are heading for an authoritarian future led by China if we continue to ignore or ‘accept’ what is happening. However, I absolutely believe that our actions against this can and do start at home.

    China is currently installing some 4 billion cameras to ‘monitor’ the Chinese people. More poignantly, Tencent is at the forefront of developing facial recognition technology and is establishing its own social credit score system. The implementation of these technologies by the likes of Alipay and Tencent only serves to further the ambitions of the Chinese Government and ‘condition’ the people to the new normal.

    By continuing to consume Chinese goods and invest in their companies, we are indirectly condoning their behavior and actions. If you knew your neighbor was involved in unethical or immoral activities, would you be prepared to interact or invest in your neighbors commercial enterprises? Maybe, with apprehension no doubt.

    By investing in these companies and consuming their products and services we inadvertently accept the actions taken by these organisations in supporting and furthering the ambitions of the Chinese Government.

    We need to defend democracy and put it (and human rights by the way) ahead of economic and financial gain.

    So whilst I admire you voicing your opinion, actions speak louder than words. As such does this, or rather has this changed the attitude or investment thesis of MIM to invest in these companies?

    I certainly hope so.

  6. Thank you, Roger for speaking out.
    Do not forget their spiritual leader said this and the CCP treats us with the same disdain.
    “The Capitalists will sell us the rope with which we will hang them.”
    Vladimir Ilich Lenin

  7. Thank you for having the courage to post this publically. Too many in Australia remain silent for fear that the money will stop flowing our way. It’s no accident that the number of democracies and the quality of those democracies has been going backwards since 2000 as American power wanes. Every tinpot dictator from Cambodia to Venezuela knows they can expect help from Beijing if they come under human rights pressure from the West.

    Within China, that social credit score and the increasingly ubiquitous surveillance is beyond horrific and has the potential to turn China into a country of fearful slaves and exceed anything George Orwell dreamed of.

  8. Will you be selling the funds’ holdings of alibaba and Tencent? These businesses clearly have cosy relationships with the dictatorship.

  9. Michael Shapiro
    :

    Thank you for “calling out a bully” to put it mildly. History indeed repeats itself periodically, if we let it happen. It’s amazing how seamlessly supposedly leftist/communist ideology morphed into nationalistic, fascist, NAZI-like dictatorship.

  10. China Is Getting Ready to Crush Hong Kong
    By Eric S. Margolis
    August 17, 2019

    The type of repression China imposed on Tibet and Muslim regions could be repeated in Hong Kong. 

    There is absolutely nothing any of the world’s powers can do about it. 

    If the Hong Kong students are not wise, they risk winding up in China’s penal camps, the ‘laogai.’  Large numbers of Muslim Uighurs from Xinjiang have been locked away in China’s western laogai.

    The massive rioting in Hong Kong earlier this week set off alarm bells in Beijing, which runs an Orwellian police state on the mainland.  China’s hardline leaders rightly fear that the fracas in Hong Kong could incite other uprisings across China.  Everyone remembers the long, bloody Cultural Revolution of the 1970’s with its rampaging Red Guards.
    Perhaps more important, Chinese leaders study their nation’s history and draw lessons from it, unlike America’s history-free politicians.  For the Americans, history is what was on Fox TV the week before.

    What Beijing really fears is another Taiping Rebellion.  A nobody named Hong Xiuqan proclaimed himself the brother of Jesus and raised a vast peasant army to overthrow the ruling Manchu dynasty in Beijing.  Brutal civil war raged from 1850-1864 in which up to 100 million are believed to have been killed or died of famine.

    https://www.lewrockwell.com/2019/08/eric-margolis/china-is-getting-ready-to-crush-hong-kong/

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