04 Oct Larry Fink (Finally) Breaks Bad on China. but Why?
The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers. I am sharing it here today because I thought it might be useful to some of you.
This Isn’t How It’s Supposed to Work
I – among others – have spent the last several years picking on Larry Fink, the CEO of BlackRock, the largest asset management firm in the world. And for good reason. Fink has been at the center of the assault on free and fair capital markets that goes by the name “ESG.” He has also, over the last couple of years, been at the heart of the effort to integrate the People’s Republic of China more fully into the world’s financial system. To do so, of course, he has had to minimize or even ignore the CCP’s murderous human rights record, its disastrous economic record, and its propensity to lie about everything, from the state of its real estate market to the nature of the respiratory illness mysteriously plaguing the city of Wuhan.
Fink has called China the greatest investment opportunity of his lifetime. BlackRock is not only heavily invested in Chinese companies (like PetroChina) but also kissed all the posteriors necessary to become the first foreign asset manager to open a mutual fund business on the mainland. A couple of years ago, BlackRock’s internal think tank recommended everyone triple their investments in Chinese companies.
China and BlackRock sitting in a tree, in other words.
Therefore, it was with great surprise and relief that I read the other day that Larry Fink had criticized China and told investors that it is, perhaps, time to rethink their relationships with the CCP and its investment “opportunities.” Yes. I’m serious. Or at least that’s what Bloomberg tells me. The misleading/mistaken subhead on this story notwithstanding, the body of the article says that, “The executive” (that’s Fink) “said Western companies should be reassessing their ties to China….”
Well, I’ll be….
There’s gotta be a catch, right?
Sadly, there is: that sentence, in its entirety, reads: “The executive said Western companies should be reassessing their ties to China in light of its support for the Russian economy.”
Oh.
The CCP can use the Uyghurs for slave labor. It can commit cultural genocide against the Uyghurs and literal genocide against the Tibetans. It can commit, or at least encourage, gender-cide against girl babies – born and unborn. It can make business executives and government officials who talk too much disappear. It can violate international treaties, threatening its neighbors and making the “one country, two systems” myth vanish (along with countless citizens of Hong Kong) overnight. It can spend the entirety of Xi Jinping’s reign perfecting the art of “fascism with Chinese characteristics.” Etc. etc. ad infinitum. And through it all, Larry Fink doesn’t bat an eyelash. Meh. No big deal. But help out old Vlad the Invader, and suddenly, everyone everywhere needs to “reassess” how they think about the people who gave the world COVID and are still lying about it.
To be clear, opposing Putin’s regime and ending business ties with it over the invasion of Ukraine is both morally and fiduciarily legitimate. When BlackRock was among the first American companies to sell its Russian assets and leave the country more than two-and-a-half years ago, no one said Fink was making a mistake or betraying his customers. Everyone – rightly! – nodded in agreement.
Likewise, opposing the Chinese regime’s aid to its Russian counterpart is something that can be justified on moral and fiduciary terms. If we want Vlad to lose, and if we think it’s a bad idea to be invested in his corrupt economy, then it is perfectly fair to want the Chinese to stay out of the whole thing and to believe that their unwillingness to do so is indicative of potential problems with their economic model.
What’s NOT OK, however, is deciding that the CCP is bad now, specifically because of Russia. Its support for Russia is a symptom of the regime’s attitudes, beliefs, and behavior. It is nothing new, and it is nothing out of the ordinary. It’s perfectly expected, given who and what they are.
If Fink truly believes that it’s important to reassess China ties specifically because of the CCP’s aid to Putin, then this isn’t really about China at all. It’s about Russia and Ukraine. It’s about his personal, political beliefs and nothing more. Think about it: Fink knows that the Chinese government and business world are corrupt. He knows that he and his customers got screwed by Luckin Coffee. He knows that for years the Chinese refused to conduct Western-style audits. He knows that even now, the CCP “recommends” that Chinese corporations use Chinese accounting firms rather than Western firms. He knows all of this and more, but he expects us to believe that it’s the Chinese government’s support for Putin that constitutes the real risk in partnering with the Butchers of Beijing? Is he serious?
What all of this tells us is that Fink has learned nothing from the ESG meltdown. ESG was/is a problem NOT because environmental and social goals are bad things, but because they are, in the ESG model, allowed to be more important than business performance and asset managers’ fiduciary duties. ESG is a problem because it elevates politics over shareholder rights and value. With his proclamation on China the other day, Fink is doing the exact same thing; he is allowing his political beliefs about the war between Russia and Ukraine to supersede everything else.
I could go on and on (and on), I suppose, about the various reasons why Fink is so attached to the idea of stopping Putin and preserving a free Ukraine, but I’m afraid that would dilute the point, namely that Fink is playing politics with more than $10 trillion of other people’s money. Again.
To be clear once more: I am hardly bothered by the idea that American investors should reassess their relationships with China, its government, and its companies. Indeed, I believe that’s a fantastic idea, which is why I’ve advocated doing so for almost a quarter-century. The problem here, the problem with Fink’s embrace of that idea for overtly political purposes. That’s not how this is supposed to work. That’s not right – in any circumstance, by any fiduciary.
I know politics matters to capital markets. I’ve built my 28-year career on that notion. But it can’t be the only thing that matters. Political preferences can’t take the place of clear eyes and sound judgment.
NOTE: I was traveling this week, which is why you’re getting the ESG note today. I will be back tomorrow morning with Bonus Content and then the normal schedule next week. Hopefully.
Thanks, Steve