Commentary: Murdoch: Penny Wise, Pound Foolish In Asia

Say this for Rupert Murdoch: He's not afraid to cower. The Australian media mogul has spent the past five years in China backing off from his famous 1993 statement that satellite television is "an unambiguous threat to totalitarian regimes everywhere." Four years ago he pulled BBC News off StarTV's China broadcast to protect his $825 million investment in the satellite channel. Then he sold his stake in the South China Morning Post, one of the world's most lucrative papers, to avoid conflict with Beijing. Murdoch even published and hyped the anodyne memoirs of former paramount leader Deng Xiaoping's daughter.

So it's true to form that he would walk away from publishing the controversial memoirs of former Hong Kong Governor Chris Patten--whom Chinese officials branded a "strutting prostitute" for his advocacy of democracy in Hong Kong. "Business and politics and culture are interwoven," says Bruce Dover, News Corp.'s head of China operations. "That's the lesson we've learned in China."

So was News Corp.'s cravenness a smart business move? True, it's ahead of the competition in China. It has a joint Internet service with the People's Daily and a venture with the Tianjin People's Committee to operate a video production facility. Its part-owned Chinese-language channel now runs on cable--a first for a foreign satellite feed. But Murdoch might have done better--financially--to hold on to the South China Morning Post. Neither StarTV nor his other China ventures have ever turned a profit.

In the short run, it's often a losing battle for companies to stand up to Beijing, as Murdoch and others have found. But in the long run, it's not likely to help China or the beaten-down economies of Asia if honest debate is stifled. Indeed, one lesson of the mess roiling Asia is that punishing truth-tellers means that the problems have more time to fester.

Asia is filled with examples where it would have been best to thank bearers of bad news rather than attack them. In Thailand, Goldman Sachs (Asia) Ltd. was called on the carpet in early 1997 for suggesting that the baht's peg to the U.S. dollar wouldn't hold. Goldman was right, but the central bank squandered billions in reserves defending the baht. Thai police even raided the Bangkok office of ABN Amro Asia Ltd. last year to check out whether the Dutch investment bank was encouraging investors to sell the Thai currency.

In Korea, too, more openness would have saved tens of billions of dollars. Executives at a leading British securities firm were forced to apologize to officials at Korea First Bank in early 1997 after one of the firm's analysts warned about its loans to ailing Hanbo group. Immediately after a senior executive with the securities firm went on bended knee to Korea First, Hanbo group collapsed under its $6 billion debt. In its wake, Korea First Bank went bust. The securities firm doesn't want to be identified because its report is the subject of a parliamentary investigation.

If there's any good news, it's that Asia's troubles make it more likely that honesty will be tolerated, if not encouraged. Look at Morgan Stanley, Dean Witter, Discover & Co. Chinese officials have cold-shouldered the firm since strategist Barton Biggs advised investors to sell the Hong Kong market during last October's meltdown. Biggs and the U.S. investment bank were criticized by the financial elite, and insiders say that Chinese President Jiang Zemin and Vice-Premier Minister Zhu Rongji were livid. Even now, officials still urge Biggs's firing.

Yet Morgan Stanley soldiers on, and execs say the controversy hasn't cost it business. It just headed up a $150 million bond issue for Shanghai Industrial Holdings Ltd., one of the largest Chinese state companies listed on the Hong Kong exchange. "The American houses are pretty immune because people need American capital," says a Hong Kong-based executive at a European investment bank.

The lesson isn't that honesty pays. But it should. As Asia's financial crisis grinds on, leaders are likely to find that punishing bearers of bad news will carry an increasingly high price.

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