2003: What does Buffett think about China, considering the PetroChina investment?

AUDIENCE MEMBER: Hi. My name is Karen Kalish. I’m from St. Louis. And I think I’m the first woman to ask a question today. (Applause)

WARREN BUFFETT: We’re all for that.

AUDIENCE MEMBER: My late uncle, Bill Shield at Robert W. Baird, first bought Berkshire for our family when it was $337.

And I’m very grateful to you two, because I’ve been able to start a foundation in St. Louis and give money away. And I give it to reading and literacy programs.

But I’m very curious about the Buffett-Munger philosophy and practice of philanthropy.

And my second question has to do with China. You made an acquisition recently, PetroChina, and I’m curious of what you think about China.

WARREN BUFFETT: Well, the second question, we have about — I think — about five equity investments in companies that are domiciled and that operate primarily, or entirely, outside the United States.

We don’t list all our investments. We listed, I believe, last year, all those above $500 million. And we have never had — I think maybe since Guinness some years back — I don’t think we’ve ever had one hit the threshold of reporting in the Berkshire report, although we’ve owned some.

And the Hong Kong stock exchange has just recently changed their requirements so that you have to report 5 percent of the holding of any company listed on the Hong Kong stock exchange.

And our PetroChina holdings, actually, are now, whatever it is, 13 percent, but they’re only 13 percent of something called the H shares.

The Chinese government owns 90 percent of the company. The H shares own 10 percent. They sold that to the public a few years back. So we own 13 percent of a very small percentage. And it’s kind of a fluke of reporting that we’re required to report that particular holding. And like I say, we own four or so others in international securities.

We don’t make any great judgment about China. You probably know more about China than I do. We simply look at investments around the world and we try to buy into things that we think offer the most value.

And if they’re in the United — we might prefer, slightly, that they be in the United States, and we might have strong preferences against — or strong biases against certain countries.

We would regard the United States as number one because we understand the game the best here. We understand the tax laws and all that sort of thing, and the corporate cultures and so on. But we would regard a number of other countries as virtually equivalent to the U.S.

And there’s others that would have been marked down some, and then we’d have a whole bunch we wouldn’t go into under any circumstances because we just don’t understand them well enough.

But, you know, we think we understand something like the oil business in China reasonably well. And at a price relative to what we think the future cash generation is, we would make a decision on something like that.

But it’s not a big deal. It’s a big — it became reportable because of this peculiarity of the law, where if you own a certain percentage of something that’s only 10 percent of the whole pie, you still have to report it.

The Chinese government is firmly in control of PetroChina. I mean, if we vote with the Chinese government, the two of us will control PetroChina. (Laughter)