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# OFTEN WRONG, BUT NEVER IN DOUBT

In our opinion, the perception of the rule of law exists in every country. However, changing circumstances and unforeseen pressures often force governments or people in developed countries and in emerging economies to change the rules in the middle of the game. People are protected to one extent or another by the laws that governa?|.until the laws are changed or are deemed unenforceable.
China has the rule of law, but their logic is different than ours. Can it be OK to cheat a foreigner investor if it allows more Chinese to be employed...but not OK if it hurts the Chinese image or Chinese investors? Ita??s a big country with a lot of different powerful influences. A great book about doing business in China and all of its pitfalls is "Mr. China" by Tim Clissold.
In China, we have found that if we can choose investments where our clients' best interests are congruent with the best interests of powerful (or numerous) Chinese interests, we are more likely to be profitable and avoid fraudulent or shady schemes. In our experience, if you have no fellow investors who are Chinese, the investment is less likely to prosper. We believe it is more problematic for Chinese to cheat a fellow Chinese than to cheat foreign investors.
For this reason, Chinese companies listed in Hong Kong or Singapore are better to own than those only listed in the U.S. or in Europe. The best investments in our opinion, are those which trade in both China (at one price) and in Hong Kong or Singapore (at a much lower price for the exact same ownership percentage).
As for India, in our opinion India has good rule of law, but it is better to avoid family owned small companies. In general, the big companies are too big to be petty, and do small dishonest things. India has excellent accounting and a British style legal system, although court cases can take forevera?|up to 10 years or more. We are actually more comfortable investing in big family companies or technologically driven companies run by a group of non-related Indian techies.
The most corrupt part of India is the civil service bureaucracy, so we try to avoid government owned companies.
Overall, we think China and India will continue to grow without any major problemsa?|.in great part because they both have to. By this we mean they have to improve the standard of living of their constituents or lose power. Both countries have seen what happened in the former Soviet Union, where the economy did not provide a rising standard of living for its people. Eventually, after the people realized most everyone else on earth was making progress and they were mired in the status quo, the people voted with their feet. They either left the countries or lobbied hard for a new type of government.

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