Is Steve Wynn Missing the Point on China?
Steve Wynn on China
A few weeks back, Steve Wynn proclaimed that “Macau has been steady. The shocking, unexpected government is the one in Washington” along with a handful of other choice words directed at the U.S. government’s handling of the credit crisis.
Of course Steve Wynn, CEO of Wynn Resorts (NASDAQ: WYNN) likes working in China. He’s dealing only in Macau, a province much like Hong Kong in that it is one of the “one country, two systems” regions in China (NYSE: FXI). Macau enjoys freedom and liberties unthinkable on mainland China. To equate Macau with all of China is just wrong. Moreover, to equate China with the United States is not only morally reprehensible, but economically naive. Question the economic policy of the U.S. government all you want, but this country unquestionably has one of the least spotty human rights records.
Sure from Steve Wynn’s perspective tax policy is important. But there are serious risks when dealing with a country that can change its stance towards your business and your customers on a whim. Until China improves its track record on human rights and civil liberties there will be an implicit risk to any investment in the country. Of course totalitarianism opens the door for profit opportunities. Favoritism, protectionism and corruption, all inherent elements of totalitarianism, come with exceptional money-making opportunities. It’s easy that way! But watch out, because as quickly as you can come into favor and profits, you can fall out of it.
Some Fake News for the China Puffers
Not too long ago CNBC’s Jim Cramer said something echoing that sentiment and I offered Cramer the following fake news story in response:
A new survey of portfolio managers revealed a shocking trend developing in the investment universe: portfolio managers prefer investing in countries with Communist dictatorships, military coups within the past five years, oligarchies who dominate wealth coupled with a former lieutenant colonel in the KGB pulling the strings, and a civic society which largely favors strong-handed rule to democracy than they would the world’s longest-standing and most free democracy. Investors cited concerns over “wealth destruction” as the primary catalyst for this shift in sentiment, as they believe only strong-handed rule, with high barriers to entry can adequately protect their hard earned wealth.
Following this alarming survey, President Obama declared that “Although I am not a socialist, after learning the results of this poll, I have decided to ask Congress to put together a bill that would pave the way for a movement towards totalitarian Communism.” Not to be outdone, the Republican National Committee hired Goldman Sachs (NYSE: GS) as an outside consultant in order to explore the availability of former global military and intelligence leaders to orchestrate a military style coup in the United States in order to attract investments to the slumping domestic economy. A spokesman from Goldman declared that this is a new line of business for Goldman Sachs and revealed that the opportunity in political orchestration came from a message that G-d left Lloyd Blankfein on his voice mail during the week of January 15th.
In response to these latest developments, stocks initially flew on the news that the United States would explore alternate forms of government. What started as a morning rally turned into an afternoon collapse, as investors expressed concerns over the ability of Democrats and Republicans to reach a consensus as to the most beneficial form of totalitarianism.
The Cold, Hard China Reality
I urge Wynn and Cramer alike to speak with some Australians and/or Rio Tinto (NYSE: RTP) about some of the complexities of working in China. Just recently, China jailed several Rio Tinto employees on charges of bribing officials and “stealing commercial secrets.” The Australian Foreign Minister Stephen Smith had the following words to say about the secretive trial and murky process: “This was an opportunity for China to bring some clarity to the notion or question of commercial secrets….As China emerges into the global economy, the international business community needs to understand with certainty what the rules are in China.” All the charged employees surprisingly plead guilty, and were “tried” in a closed trial to which Australian officials were wrongfully denied access. Many insist that these actions by China were in response to aggressive pricing negotiations over iron ore, an essential input good in steel production.
Whether these officials were guilty of bribery or not, there is seemingly rampant bribery in China. Not only that, the country places significant limitations on civil liberties and its human rights record is far from clean. While there have been improvements, China uses capital punishment on political dissenters, censors dissent, limits religious freedoms, discriminates against ethnic minorities and exposes its poorer workers to inhumane conditions. These are substantial issues that companies and investors must consider in allocating capital to Chinese endeavors and significant barriers to entry in working in China.
Wynn should speak with a few of his American peers to learn just how wrong he is. Just this week, GE’s (NYSE: GE) CEO Jeff Immelt expressed concern as to whether “ in the end they [China] want any of us to win, or any of us to be successful” (Immelt did not have kind words for Obama, but they were far from the level of concern expressed with China). Or Wynn can just ask Google about their experience in the country. Google (NASDAQ: GOOG) refused to succumb to China’s harsh censorship laws, and as a result, the company was forced to shutdown their Chinese search engine. Sure there are profit opportunities in China, but there are also very real obstacles created by the People Republic’s spotty and inconsistent record on human rights, civil liberties and corporate governance. The country is inherently unpredictable with arbitrary spurts of complacency and aggression.
I am well aware of the challenges faced by the U.S. in the midst of this rolling credit crisis. These are frequent themes that I discuss and dissect. Yet despite our troubles, to remotely equate conducting business in and with a country with questionable regard for its citizen’s lives is rather absurd. Talk about the world’s largest population maturing in one country. Talk about the urbanization, modernization, industrialization of a major global power. Talk about these things and invest accordingly. But please don’t compare the governments of the two and say that China is more predictable and stable than Washington.
The American Dream
Economic policy is but one element as to what a government does. To conflate tax policy with policy generally speaking is not only missing the point, it is blatantly immoral. There are far more variables to governance than just how a government approaches taxes. Sometimes finance types end up stuck in a finance-centric rut. Policy generally speaking is much broader than how governments treat investors. Our system is stressed, but it is not broken. We in this country have longstanding principles and traditions that have withstood the test of time and have afforded generations of people an opportunity to partake in the American Dream.
On this Fourth of July shortened week, I think it’s important we acknowledge this essence of Americanism that has remained consistent (to an extent…) since the very beginning. Unlike China, we don’t jail political dissenters, we don’t censors dissent, we don’t limits religious freedoms, and we don’t discriminates against ethnic minorities. Our justice system is largely equitable and consistent. If a cheaper tax rate for Steve Wynn is worth assuming the political risk of China that’s his choice, but in the grand scheme of things, there is just no way to compare the governments of the two countries. One promises “life, liberty and the pursuit of happiness” while with the other, you just never know.
Disclosure: Long GOOG
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