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Why you shouldn't invest in countries like China

Why you shouldn't invest in countries like China

Authoritarian regimes – a bad place to store money and invest – is an axiom that has been repeatedly confirmed by the history and experience of many financiers around the world. Nevertheless, many investors still continue to try to invest in economies without established democratic institutions.

 

This was especially evident with investments in shares of Chinese companies, which, against the background of the growth of the "world factory", often became quite attractive objects for investment.

 

Yet even now, looking back, we can confidently say that this was a mistake, at least if they did not have time to withdraw their funds before a series of recent crises, which is caused by the chinese Communist Party's attempt to regulate the economy of the giant country.

 

Why it happens?

 

The answer to this question lies in the deep socio-economic plane of human relations. The fact is that the main engine of the economy for a long time has been a reverent attitude towards the institution of private property, which becomes a very serious incentive for the growth of both individuals and their enterprises, and the economies as a whole.

 

You will not want to invest in something if you know that it can be taken away at any time and you will be left with nothing. You will not waste energy and emotions on the formation of your own business if you find out that it can be taken away from you. This all means that a much smaller number of people will be able to decide on already quite serious deprivations, which means less diverse competition, as well as a less competitive result.

 

Imagine that on the one hand 50 athletes are fighting for prizes, and on the other only three. Agree, the knowledge that even without doing anything, you will take third place, a little shakes the motivation.

 

The second reason grows from there, from disrespect for private property. Investing in an enterprise of an authoritarian or quasi-authoritarian regime, you risk simply losing your investments.

 

Thus, global nationalizations, expropriations and other long terms have been making many foreign investors poor for more than a hundred years.

 

The third is instability. Yes, an authoritarian regime can show dizzying results by developing the economy at several tens of percent a year, but this is most often caused by a centralized incentive, rather than market conditions, which adversely affects not only the investment process, but also the result.

 

The fourth reason is the instability of the political authoritarian regimes themselves. With the change of power, anything can happen: a military coup, a radical change in political and economic course, for example, a kind of regulation of the economy, which often contradicts the entire political economy as a science.

 

Well, the last and most important reason is the lack of attachment to the market economy. The fact is that the market acts as a global regulator, according to the behavior of which scientists have derived many economic laws. In countries such as China, they simply may not work, because the market, as a regulator there, very often does not fulfill its function.

21.09.2021
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