Many investors now screen companies
for their environmental, social and governance standards.
That should be a good thing
But then why are they still investing in China?
Welcome to China Uncensored, I’m Chris Chappell.
For many foreign investors, China is the land of opportunity.
The El Dorado of capital markets.
When China was coming out of the Cultural Revolution, it couldn’t make a lot of things
itself—or at least not well.
This created an opportunity for foreign businesses to come in.
And they sure did.
China has 1.4 billion people, which means that if even just a fraction of them buy a
company’s product, that company can get filthy rich.
This is why foreign investment in China just keeps getting bigger.
But there are some big ethical red flags when it comes to investing in China.
To start, China has a major pollution problem.
In a push to make Chinese Communist Party officials rich…I mean, to develop the economy,
China’s basically trashed the environment.
That’s thanks in large part to its use of coal, which has badly polluted Chinese cities.
China has other pollution problems as well, which I won’t go into here, but I’ll put
a link to this video we did about how China’s pollution has reached apocalyptic levels.
Thanks in large part to China’s coal consumption, China emits more CO2 than all other developed
countries combined.
Which, as you can imagine, made China pretty unpopular at the COP27 climate summit this
summer.
China’s pollution problem has also led to the phenomena of “cancer villages” where
almost every household in a village has at least one person suffering from cancer.
Not to be outdone by its environmental record though, China’s human rights record is equally
bad.
Maybe worse, although it’s kind of like comparing apples and oranges.
Terrible apples and horrible oranges.
The non-profit Freedom House gave China a nine out of 100 for freedom this year.
Meanwhile Reporters without Borders gave China one of the lowest rankings in the world for
press freedom.
As in, there are only five countries that are worse, including Iran and North Korea.
And the US State Department has designated China a country “of particular concern”
for violating religious freedom.
The US has also accused China of committing genocide against the Uyghurs, a mostly Muslim
ethnic minority.
That includes locking up at least 1 million Uyghurs in concentration camps.
Even the UN, which has been deeply compromised by China, says this potentially constitutes
crimes against humanity.
In 2019, an independent tribunal in the UK found that China forcibly harvests organs
from prisoners of conscience.
And if anyone dares to criticize the Chinese Communist Party, they can legally be disappeared
and tortured.
I could go on, but I think you get the idea.
Then there’s China’s censorship, which is what keeps the lid on the pressure cooker
despite all these problems.
Besides creating a Great Firewall that blocks outside information from China’s internet,
China has created a surveillance system that uses AI to track people by their appearance,
their cars, and their phones.
China requires its citizens to use their real names on the internet so they can easily be
tracked down if they run afoul of censors
And China even requires people to do a face scan to get a new phone.
Which is bad, but not as bad as having to do a face scan just to get some toilet paper.
Clearly that’s the real outrage here.
While the Chinese Communist Party was busy building George Orwell’s dystopian society
from 1984, the investment world came to their senses and stopped investing in China!
At least that’s how the story should have gone.
Unfortunately, the exact opposite happened.
I’ll tell you more, after the break.
Welcome back.
There’s a newish trend in the investment world called “ESG”, which stands for environmental,
social, and governance investing.
The idea is that investment decides which companies succeed and which fail.
And what better way to improve the world than investing in companies that support good values?
Sounds like a good thing, right?
The problem is, money is always a bigger priority.
And ESG standards can be easily manipulated.
The idea of ESG, or “socially responsible” investing has been around since at least the
1970s.
But it really took off in the last 10 years or so.
This chart shows the number of signatories on the United Nations Principles for Responsible
Investment, or PRI.
PRI is basically the UN’s take on ESG principles.
In its definition of PRI, the UN lists things like:
-climate change -pollution
-human rights -modern slavery
-bribery and corruption -And political lobbying
Now here, it looks like Environmental, Social and Governance issues are all given equal
weight.
But in reality, the focus of most ESG investments is on the environment.
And of those environmental issues I listed earlier, climate change is by far the main
issue.
Even the UN admits that “Climate change is the highest priority ESG issue facing investors.”
So since China is basically a walking climate disaster, and even plans to build *more* coal
power plants than it already has,
you might think ESG investors would realize China isn’t a green investment.
But no.
Like I said earlier, when it comes to making money, what really matters is this kind of
green.
Here’s how the World Economic Forum justifies this doublethink:
“President Xi has announced China’s goal to be carbon-neutral by 2060, which will further
fuel the transition to low-carbon economy transition.”
Never mind that China has also said it will continue increasing its CO2 emissions through
2030.
Others claim China is definitely committed to going green because it’s the “the biggest
manufacturer of renewables equipment.”
Yes, all the solar panels are being made with forced labor in China.
So green!
Now I’m sure some of you are thinking “why so cynical Chris?
Just because China oppresses its people and pollutes the environment doesn’t mean it
doesn’t care about the destruction of the planet?!”
Well for one, the fact that China emits more greenhouse gasses than the entire developed
world combined, and doesn’t plan to stop for another 8 years, makes it pretty clear
what its priorities are.
Second, if you look at how China treats other global resources the world depends on, you
can see that China basically doesn’t care.
For example, China has essentially wiped out all the fish in its own waters, which is why
Chinese fishermen have been caught poaching all around the world.
And it’s not just private fishermen doing this—these are state-subsidized fishing
operations.
When the Chinese Communist Party talks about the promise of renewable energy, it’s not
saying that because it cares about climate change.
It says that because it’s a great business opportunity.
For example, China gave massive subsidies to its solar panel industry.
This allowed it to flood the market with cheap solar panels and drive out competition all
around the world.
And like I mentioned earlier, I’m sure it also helped that China has a lot of enslaved
Uyghurs that needed to be “re-educated through forced labor.”
Then there’s the Chinese Communist Party’s history of saying what investors want to hear
and then doing the exact opposite.
This is the vice chair of China’s Securities Regulatory Commission in August 2020.
“The Chinese economy, despite the challenges of Covid-19, has actually recovered quite
nicely and over the last 3 weeks or so, I went to Hainan, I went to Qingdao, and I went
to Shenzhen and then I went to Guangzhou, so I went to four cities in the last 3 weeks
and just based on my own observation, the economy seems to have quite fully recovered.”
This was during a time when China was trying to convince the world it had basically beaten
Covid.
Well two years later, China is still in the throes of the pandemic, and its economy has
definitely not recovered.
Which is why it’s now trying to boost foreign investment!
I’ll tell you more, after the break.
Welcome back.
So China has been trying to woo foreign investors to help its sagging economy.
And foreign investors have responded, despite the risk that arbitrary government shutdowns
could come back at any time.
Even earlier in the pandemic, companies were still heavily invested in China.
In 2021, Hong Kong Watch looked at a range of institutional investors that had investments
in China, many of them managers of public funds.
All of them used ESG language to describe their investment principles.
But when you look at the companies they invested in, let’s just say they had a pretty “loose”
interpretation of ESG.
The New Zealand Superannuation Fund is New Zealand’s
government-owned investment fund that covers pretty much every New Zealander’s pension
funds.
It claims it’s committed to the UN’s Principles for Responsible Investing
It even received an A+ rating from the UN’s PRI for its responsible investments.
But Hong Kong Watch found it was invested in 14 Chinese companies that the US had blacklisted
over national security and human rights concerns.
iFlytek, for example, has reportedly worked with China’s military.
While Zhejiang Dahua Technology worked with the Chinese regime on surveillance systems
to track Uyghurs.
Same thing with the the Norwegian Sovereign Wealth Fund, Norway’s government-run pension
fund.
It claims it expects companies to integrate human rights into their business practices.
And says companies can be excluded from the fund if they don’t.
Yet Hong Kong Watch found that the fund was heavily invested in companies like
Alibaba, Tencent, and Baidu.
Alibaba has worked with the Chinese government on facial recognition technology that specifically
targeted Uyghurs.
Tencent, which owns messaging service WeChat, routinely censors for the Chinese Communist
Party—even surveilling foreign users of Wechat.
Search engine Baidu has also been accused of working with the Party on censoring pro-democracy
speech.
Last month, financial services firm Morningstar downgraded the ESG rating for Tencent and
Baidu over their censorship of the Chinese internet.
So that’s all pretty bad.
And then there are the foreign funds invested in China’s state-owned energy companies.
The UK Parliamentary Contributory Pension Fund is the pension scheme for British members
of Parliament.
In addition to being invested in Tencent, and Alibaba, it had hundreds of thousands
of pounds invested in Sinopec.
Sinopec is owned by state-owned enterprise Sinopec Group
“Sinopec has close links with the Chinese military and state, developing body armour
for the Chinese military” as well as being “the largest oil and gas refining company
in the world.”
Now according to a 2021 report the pension fund put out, the stewards of the fund are
supposed to screen for human rights violations, as well as climate change risks.
I’m not sure how they see being invested in the largest producer of oil and natural
gas as helping mitigate climate change, but I’m sure they have a good excuse.
The UK Universities Superannuation Scheme was also invested in Sinopec.
This is the largest private pension scheme in the UK and is also a member of the UN’s
Principles for Responsible Investment.
Now these aren’t the only institutional funds invested in China.
Many others, like JPMorgan Chase
and BlackRock are also heavily invested there.
But just because it’s common doesn’t make it OK.
Companies that claim to follow ESG principles are making the term almost meaningless by
investing in China.
And not just because of the Chinese Communist Party’s human rights and environmental violations.
It’s also because the Communist Party’s system of “civil military fusion” means
that all companies in China, whether they’re private or state-owned, are ultimately under
the control of the state.
And that state doesn’t exactly care about improving environmental, social or governance-related
issues.
And remember, China Uncensored is able to keep making episodes like this because of
viewers like you who contribute to the show through the crowdfunding website Patreon
As a thank you, I answer their questions at the end of each episode.
Generic Full Time Weirdo: Recently, I saw a map of countries that claims to be a democracy.
China was one of the nearly 95% of those countries.
Could you explain what democracy with Chinese characteristics looks like inside a country
with a Marxist/Leninist ideology?
Well, Generic Full Time Weirdo, I can do better than that.
I did an entire episode last year on how China is a democracy now!
Or rather, on how the Chinese Communist Party is doing this huge propaganda campaign to
co-opt the term “democracy.”
Yes, the Chinese Communist Party has a way better democracy than the stupid United States
with their stupid mass voting.
The best type of democracy is one-person, one-vote.
And that person is Xi Jinping.
How does China’s so-called democracy fit in with Marxism-Leninism?
Perfectly.
It’s even in China’s constitution.
You see, it’s the Chinese Communist Party under the guidance of Marxism-Leninism that’s
leading the people’s democratic dictatorship.
And if you’re confused about what the people’s democratic dictatorship means, I explain how
Chairman Mao invented that term and how it’s even more messed up than it sounds, in this
episode.
Check it out, Generic Full Time Weirdo.
And thank you for supporting the show.
And if you’d like to do the same, visit Patreon.com/ChinaUncensored
We rely on your support to keep making great episodes.
Once again I’m Chris Chappell, thanks for watching China Uncensored.