Bharat Bhise has spent several decades investing in transportation and logistics finance businesses, during which time Bravia Capital focused on the fast-growing Asian markets. Since then, Bhise has spent his time in thought leadership, especially in the area of future conflicts between conflicting forms of government, governance, intellectual property, and free speech. Together with his wife, Swati Bhise, he remains passionate about gender parity and anti-racial discrimination and supports numerous organizations devoted to these causes.
A first-generation American with business degrees from Delhi University, Adelphi University, and New York University, Bharat Bhise discusses the intricate and intertwining roles between international business and global politics.
Your background seems to be primarily in international finance and investments, but lately, your time appears to be spent more on foreign relations. Why is that?
It's difficult to really separate the two areas when investing in a foreign country. A key or the key in cross-border investing is the analysis of political risk, which has evolved from basic expropriation risk analysis to a wide range of factors, including the study of the host country's monetary and fiscal policies, governance comparisons, currency devaluations, respect for intellectual property, labor practices, gender equality, minority, and child protection laws, conflicts of interest and a host of social and cultural differences between the foreign investor and host countries.
So you feel that global politics and global investing are linked?
They are linked only in the context of the differences in the political systems between countries. So, for example, if an American firm were to invest in a country that has comparable political and legal systems, such as the U.K. or Japan, then that's not necessarily so.
However, when legal and political systems are different and even divergent, it would be foolish for an investor not to do a deep dive into how local politics would, or could, affect the agreements entered into at the time of the initial investment. One would have to consider what might happen if the current government in power were to be replaced by a new one. This analysis gets further complicated when authoritarian governments simply change their policies unilaterally, either for political reasons or because fundamental economic realities have changed.
What do you mean by "a change in fundamental economic realities"?
This is what would be a mismatch in expectations on one side of the equation. The most obvious example of this is China. The post-revolutionary period from the 1960s thru the early 1990s isolated China, and the cost of labor in China was pennies per hour. Capitalism was banned, and minimal exports happened not because of but despite the government.
Then Deng Xiao Ping came to power and changed everything. FDI into China in 1995, when I made my first investment there, was $35 billion. Today it is just under $200 billion. Annually. What caused global companies to invest in China? Three things. First, is the obvious lure of low-cost organized and skilled labor. Second, is the lure of the domestic Chinese one billion-plus market. And third, the rapid scalability.
Today, the labor cost is hugely subsidized by the Chinese government. The domestic Chinese market essentially remains restricted to foreigners. But because of central control from Beijing, scalability remains China's biggest asset. When China joined the WTO in 2001, it availed of all the benefits but didn't live by any of its obligations.
What does that mean? And what does that have to do with "change in fundamental realities"?
We live in a commercial world where trade represents the basis of all economics. The WTO has huge benefits, such as access to global markets, being rated as sovereign debt in the capital markets, and participating in the writing and re-writing of trade regulations. But these benefits come with very clear obligations, specifically for access to local markets, being transparent in subsidies, and respecting intellectual property.
On local access, the number that foreign firms can sell into China should be ten times what it is. On subsidies, the CCP has built a dense and opaque financial center where subsidies such as equity loans, government guarantees, and two-tier pricing are commonplace.
And China will get away with as much I.P. theft as they can. If they get caught, they simply negotiate a settlement in a legal battle. So, the old realities were that we got cheap goods and controlled inflation, and the Chinese participated in the global capitalistic system, built up their economy, and participated in a mutually prosperous world. Well, we definitely got low inflation in the last three decades, and they built their economy. But they cheated. Chinese exports simply constitute dumping. And most of the commercial technology is stolen at a huge expense to us.
Do you believe we're at war with China?
Yes. As does much of Washington. But I believe that we're not going to be in any kind of shooting war. China may be many things, but they're not suicidal. Despite their 80 years of Communist rule, their intrinsic philosophy of warfare has always been to defeat the enemy from within, like joining the WTO and availing the benefits without the obligations.
The military buildup is a diversion that provides employment for 4 million soldiers and tens of millions of workers producing uniforms, tanks, guns, aircraft carriers, etc. Frankly not dissimilar to our defense industry model, which they copied selectively.
Diversion? From what?
Diversion from what I call Capitalism with Chinese characteristics. This is already happening in four areas.
First, cyber warfare, which is currently very low-key, but I believe numerous attacks on our political, civic, commercial, and other organizations are happening with some frequency.
Second, financial warfare can manipulate our interest rates by strategically buying or selling our government debt or key equities trading in foreign markets.
Third, data warfare via M&A into our domestic companies, which has an added benefit by which they are building slush funds in the U.S. and Western Europe.
Finally, and the scariest of all is propaganda warfare, where they are funding our universities, press, and social media to portray themselves as benign investors and partners.
Can China help Russia circumvent sanctions? If so, how likely is it they will do so?
They absolutely can, and they are. Russia's most fungible commodities, like oil and gas, may be sanctioned by the U.S. and E.U., but China will find a way to buy.
So if you had one positive and one negative takeaway, what would they be?
Positive is obvious. The autocracies in Russia and China have done the impossible. They united NATO and the E.U. and strengthened the QUAD and AUKUS. The negative is that the two autocracies of Russia and China are united, and the result will be the start of the four types of wars that I outlined earlier.
What does the future hold for your business?
I shut down our Hong Kong headquarters in 2018. I am now looking to exit most of my businesses, and the next phase of my life will primarily be in philanthropy and public service.
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