| 10 July 2007
The news that the Chinese government is arbitrarily demanding back taxes from
a range of state companies just underlines the dangers of investing in anything
to do with nation states, which are totally unethical (ok, pragmatic) in their
financial dealings with citizens, whether their own or not. In this particular case, the authorities dished out tax breaks to encourage
investors to buy the companies' shares when they listed in Hong Kong in 1993.
Now they have taken back the tax breaks, which is fair enough in the light of
China's WTO commitments and its plan to level up taxation for all companies,
foreign and domestic.
What is not fair is to demand back taxes for some or all of the intervening
period, which is what they seem to be doing. Investors bought the shares on
certain information, and now have the rug pulled from beneath their feet.
Well, 'she who sups with the devil needs a long spoon', we say where I come
from. Although governments make law, and are often good at applying it to everyone
else, they normally consider themselves above the law, especially when it suits
them financially. The history of currencies is a case in point: governments
issue money at a certain price, but then undermine its value by reneging on
their promises of fiscal rectitude. Almost all currencies have lost value very
heavily over time, leaving their holders with losses. Zimbabwe is a current
example, but it stands out only by its particular egregiousness.
Markets function fairly only under the rule of law, and an investor will be
smart if she puts her money only where she can be sure that the law will apply.
That excludes dealings with government, whether it be to hold their currencies,
buy their bonds or invest in their projects.
You have been reading an entry on the following blog:
Penelope Wise
Penny Wise but not Pound Foolish! But remember: I am not offering investment advice. My comments are just for your general information; I do not recommend investments, and you should take professional advice before entering any investment contract.
Penelope blogs on investment and financial services around the world: mainstream and alternative. Contact: penny@lowtax.net
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