Recently the Forbes.com Investor Team debated the ethics of investing in China, a country notorious for labor and human rights violations. To make loads of money and not worry about who is abused in the process or not to make loads of money and keep one’s ethics intact? That is the question. Certainly not a new question and not unique to China.
Please read the full Forbes.com article, “Can You Stomach Investing In China?” below and then let us know what you think.
Over the past several decades China has seen many significant improvements in its national health and quality of life, surely the result of the massive amounts of capital infused into the country since its initial embrace of controlled capitalism.
According to the World Health Organization, by 2005 the average life expectancy in the Middle Kingdom was just over 70 years old, whereas in 1952 it was closer to 30. The story among China’s children is even more heartening. According to UNICEF, infant mortality rates had fallen from 1990 to 2000 from 65 to 31 infants per 1,000. These are just some of the positive signs of affluence China has experienced.
But serious problems remain. The Worldwatch Institute notes that industrial pollution accidents have played a major role in poisoning China’s water supply, with 20% of it falling beneath national standards. While industrialization has brought obvious improvements in health, human rights violations remain the norm.
On Feb. 9 Human Rights Watch illustrated a lengthy list of atrocities it urges the United Nations to confront China about, including: forced confessions and torture in the justice system, child labor including in state schools and persecution of religious dissidents.
These statements raise potentially uncomfortable issues for investors. China is surely the growth story of the century, and investors want to be a part of it. But how can you know if your investment helps liberate China’s people, or merely strengthens their oppressors? Investors can invest in China, and potentially see great rewards, but ethically should they? Does the act of investing alone play a positive role?
These questions are way too broad to hope to answer in one panel with the Forbes.com Investor Team, but we took the issue to heart anyway. But first we consulted with some other China watchers to get their take on this thorny issue.
Arvind Ganesan is the director of the business and human rights program at Human Rights Watch. He works daily on the issues of how commerce and human rights intersect. Regarding human rights, Ganesan cautions that it’s naïve to believe that just because Western economies are getting involved in China that they will naturally export human decency. Things only change for the better, he says, when Western firms, either through a sincere commitment to improving working conditions or through fear of public ridicule, make concerted efforts to help China change.
“If Nike goes in there and has policies to make sure they’re not using child labor, and good working standards, (then) those practices improve the rights of people that work for them,” Ganesan says. Still, he cautions, “many companies go in and adopt the standards of the country and you don’t see improvements.”
So how can investors know which are which? The apparel and footwear industries have made positive steps, Ganesan says, because they had to, having become notorious for formerly allowing sweatshop conditions.
Firms like Nike, Adidas AG, the Phillips-Van Heusan Corp. and Mattel have all adopted higher workplace standards in China, most in line with the standards promulgated by the Fair Labor Association. The Fair Labor Association is a nonprofit dedicated to ending global sweatshop conditions.
The problem with the FLA is that it’s voluntary, Ganesan says. As we’ve seen with the U.S. securities industry, self-regulation is only good up to a point.
Steve Lewis is a fellow in Asian Studies at the Baker Institute for Public Policy at Rice University, and he notes that capitalistic enterprise has played a mixed role in expanding human rights in China. On the one hand, it’s allowed for some greater legal rights; for example, it is now easier for citizens to sue the local government and seek redress.
The Internet has also encouraged more personal expression. On the flip side the Chinese central government now also has greater means to spy on its citizens as they join the Web.
For intelligent investors, Lewis recommends looking into Western firms that partner with China, rather than investing in purely Chinese firms. Nokia Corp., for example, has demanded fair workplace standards, he says.
He notes that European firms in general have had a greater track record in their Chinese partnerships than American firms, at least regarding the issues of civil rights. This is because the European customer demands it, Lewis says.
Still, irony abounds. For example, some of the Western firms Lewis points to as besting China’s standards often wear the black hat in the Western press. Western energy companies, for example, like Shell and British Petroleum, tend to have tougher environmental standards than their Chinese partners and, since they are multinational, have more to lose from bad press.
General Electric is another firm likely to perform with raised standards in China, as it’s invested so much in its green public image, Lewis says. “They would be hurt by anything that shows otherwise.”
The Forbes.com Investor Team was divided on the issue of whether ethics should play any part in an investor’s decisions regarding China. Robert Froehlich, the chief investment officer at DWS Securities, the public arm of Deutsche Bank, adamantly believed such decisions were spurious. “I invest to make money, I don’t invest or not invest to make political, social or religious statements as there are plenty of other forums for that,” he says. Froehlich added that investing in China gives investors a seat at the table and influence.
Greg Ghodsi, the head of the 360 Wealth Management Division at Raymond James, generally aligned with Froehlich. “I am a firm believer that markets eventually solve many issues,” he says. “If labor practices are terrible and you have a growing economy, then a new company will be able to hire workers by incrementally increasing benefits.”
But Bill Singer, a longtime securities attorney and trader, found that the China question eluded a simple answer. In particular he differed with Froehlich regarding whether ethical questions are moot. “I have never been able to check my humanity at the door,” he says.
Popularity: 6% [?]
Sphere: Related Content
Related Posts
China Growth Equals Global Risk...Human Rights Today: 4.14.09...A Sparkle on Your Finger, a Dead Stonecutter in China...Contracts? We Don’t Need No Stinking Contracts!...Thanks Cadbury, Now Please Bring Fair Trade Cocoa to the U.S.!...Related posts brought to you by Yet Another Related Posts Plugin.
Stumble It!
{ 0 comments… add one now }