Date
28 July 2017
Warren Buffett's Berkshire Hathaway earned US$13.1 billion from its five most profitable non-insurance businesses last year. Photo: Bloomberg
Warren Buffett's Berkshire Hathaway earned US$13.1 billion from its five most profitable non-insurance businesses last year. Photo: Bloomberg

Why the Warren Buffett way does not work in China

Legendary investor Warren Buffett may be a genius in picking the right company to invest in, but he can only be as good as the investment targets he can choose from.

If he is only limited to China firms, he may hardly find enough good companies for his portfolio.

In the latest letter to shareholders he released earlier this year, Buffett talked about the sixth earnings “powerhouse” of Berkshire Hathaway he just purchased this year—Precision Castparts Corp. (PCC)—for US$32 billion. PCC products are key components in most large aircraft.

“Under CEO Mark Donegan, PCC has become the world’s premier supplier of aerospace components. Mark’s accomplishments remind me of the magic regularly performed by Jacob Harpac at IMC, our remarkable Israeli manufacturer of cutting tools,” Buffett wrote.

“These two men transform very ordinary raw materials into extraordinary products that are used by major manufacturers worldwide. Each is the da Vinci of his craft.”

Were Buffett to choose only from the Chinese makers’ universe, he simply cannot find companies of such caliber.

In a country that still relies on imports of core parts to make each and every ballpen, a country that can barely make decent rice cookers or air purifiers to convince its people there is no need to engage in the frenzy of shopping for them overseas, where can Buffett find the likes of IMC and PCC?

China is famous not for the “magic” of turning ordinary materials into extraordinary products, but for cloning extraordinary products into stripped-down, ordinary knockoffs.

Even for mainland corporates involved in high-tech industries, many still depend on core technologies or patents owned by foreigners.

Before the emergence of a group of world-class Chinese makers with strong proprietary technology needed by the global markets, Buffett probably has no way to deploy his investment skills.

– Contact us at [email protected]

CG

EJ Insight writer

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