澳洲人报：Warren Buffett charges on in China, while we shut door

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Warren Buffett charges on in China, while we shut doorhttp://www.theaustralian.news.com.au/business/story/0,28124,25344354-30538,00.html

Glenda Korporaal April 17, 2009

AT the last annual meeting of Warren Buffett's company, Berkshire Hathaway, in Omaha last May, a group of investors from China made the pilgrimage for the first time to take a look at one of the bastions of American capitalism.

The next month a Chinese investor, Zhao Danyang, who runs the Pureheart China Growth Investment Fund from Shenzhen, won the right to a lunch with Buffett with a bid of $US2.1 million ($2.9 million) -- part of an annual event Buffett uses to raise money for a California charity.

This year, just as some in Australia have suddenly decided that our ties with China should be regarded with some suspicion, Buffett is set to showcase one of his newest investments -- Chinese car and battery company BYD.

Last year Berkshire Hathaway spent $US230 million buying 10 per cent of BYD, which has become one of the world's largest manufacturers of batteries for mobile phones and makes handsets and parts.

Founded by Wang Chuan-Fu -- who has been described by Buffett's partner Charlie Munger as "a combination of Thomas Edison and (former General Electric chief) Jack Welch" -- BYD has been in the car business only since 2003, when it bought a troubled state-owned company. Last year it launched China's first mass-produced hybrid car -- the F3DM (dual mode) -- which can run for 100km before the battery needs to be recharged.

This followed the launch of its F3 car, which quickly became the biggest-selling vehicle of its size in China.

At next month's annual meeting, in Omaha's QWest convention centre, where a swag of the 70-plus Berkshire Hathaway- owned companies show their wares, the F3 hybrid version will be on display.

Berkshire Hathaway director and Microsoft founder Bill Gates, who usually attends the annual meeting, will be one of those looking at it.

The 42-year-old Wang has visions of running one of the world's largest car companies. His company already has factories in Romania, Hungary and India, and exports cars to Africa, the Middle East and South America.

BVD's story has already been written up as a Harvard Business School case study.

Buffett has in the past steered away from technology stocks but in his latest annual report he describes the company and its car as "representing the future". This also marks an increasing tendency to look outside the US by the Buffett-led conglomerate, which is better known for its stake in Wells Fargo, American Express, Goldman Sachs and various insurance interests.

It was those investments that prompted Moody's to downgrade its rating on Berkshire Hathaway shares from triple A to Aa2.

Buffett's own wealth plunged from $US62 billion to $US37 billion in the past year and he reported a 62 per cent cut in the firm's annual profits.

The US economy, he said recently, "will be in a shambles throughout 2009".

Last year he visited several European cities looking for family-owned companies to buy. One of his favourite strategies is to look for well-run entrepreneurial, often family-run, companies that have strong and committed management and with some investors looking to cash out.

At 78 he is still showing himself to be much more open to new investments and future trends than many others. He recently told a group of students: "The 19th century belonged to England, the 20th century belonged to the US, and the 21st century belongs to China. Invest accordingly."

Buffett has long argued that the rise of sovereign wealth funds and the increasing wealth of China is inevitable.

Large trade deficits with China, he also predicts, will inevitably lead to increasing Chinese investment offshore.

While it may seem obvious to Buffett and others, it is almost bizarre that in the past few months some in Australia -- which has prided itself during the boom times on its strong ties with China -- have been stirring up anti-China controversy for domestic political purposes.

It was only in 2003 that the Howard government patted itself on the back after a $3 billion liquefied natural gas deal in which Chinese offshore oil company CNOOC took 5 per cent stake in the northwest shelf gas field.

Now, with decisions still pending from Canberra on the proposed Chinese investments in Rio and OZ Minerals -- both of which are facing very challenging times -- the fact that potential buyers of the minerals produced by the two companies also want to invest in them is suddenly being regarded with suspicion.

Like Chinalco, which wants to buy into Rio, CNOOC began as a stated-owned enterprise. Yet former treasurer Peter Costello, who is now on the opposition backbenches, was one of many in his government who applauded the deal at the time.

As the Australian economy weakens and unemployment rises, more potential deals that could bring Chinese investment in Australian resources are reported to be on hold because of the apparent sensitivity about Chinese investment in Australia.

It begs the question -- who benefits from stirring up this sensitivity?

Rio shareholders may have their issues with how their management has handled the company and the specifics of the deal it has struck with Chinalco, but that is very different from the general principle of how key decision-makers and opinion formers handle the debate over Chinese investment in Australia in 2009.

Economists yesterday fell upon the latest economic growth figures from China to discern their implications for the outlook of the local economy. The bears pointed out economic growth in China was down to 6.1 per cent -- the lowest in nine years and argued that real growth in recent months had been all but flat. The bulls argued that the Chinese economy was "set to accelerate" on the back of improved figures for lending, industrial production, trade and capital investment growth.

However you cut it, the figure is still a lot more optimistic than the negative growth outlook in Australia's other major trading partners -- the US, Japan and Britain.

It doesn't take Warren Buffett to realise that increasing investment offshore by cash-rich Chinese companies is one of the dynamic features of the world economic outlook.

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