"Socialist" China is More Investor Friendly than the U.S.

Robert Hsu, October 21, 2009

Now, as you know, I've made no secret of the fact that I believe China is one of the greatest investment opportunities of our generation. China has continued to post robust economic growth and create wealth -- even during the global economic slowdown and as it continues to grow more difficult to become wealthy in the U.S.

But despite the great strides that China has undertaken to become an economic superpower, there are some investors who remain unsure if China is the "real deal" because of the country's history of socialism and authoritarian government.

In reality, even though China calls itself "socialist," the country is actually very capital and investor friendly.

Just take a look at the facts: China doesn't have a capital gains tax or a property tax or a tax on real estate investment gains. The Chinese government respects the fact that investors take enormous risks with their capital in order to make money -- so the Chinese government thinks investors should keep their well-earned investment gains. This is an enormous contrast to other countries where the government doesn't participate in the downside risk of investing -- but still wants to tax investors on the upside.

So whatever you want to label it, the Chinese system known as "socialism with Chinese characteristics" -- essentially "let's get rich first, then we'll think about socialism" -- has become more capitalistic than almost all other major economies. And that's apparent by how quickly China was able to bounce back from the global economic slowdown, even while other countries around the world are treading water.

Ironically, though, China still does need to provide a better social safety net -- a hallmark of true socialism. Right now, China provides less social benefit for the poor than other advanced world economies -- including "capitalistic" countries.

But this is an area that the Chinese government understands and is working at improving -- two recent examples we've discussed are with its healthcare reform plan and its steps towards improving the country's food security and raising the incomes of rural farmers. Each of these is a step in the right direction to providing a better social safety net for Chinese citizens.

So far, China remains on track to become a major economic superpower of the 21st century -- and by getting to the truth behind such labels like "socialist" or "capitalist," investors can more clearly see that Chinese companies remain a one of the best bets for investors in the years to come.

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