For D1 Capital, the primary risk in China isn't economic but political. The government's ability to arbitrarily influence resource allocation, punish successful companies, and eliminate entire sectors without due process creates an unacceptable level of uncertainty for capital allocators, regardless of how cheap valuations become.

Beyond its moral importance, freedom of the press serves a critical financial function: third-party data verification. In autocratic nations without it, investors cannot independently validate corporate or government data, making fundamental analysis unreliable and susceptible to hidden risks as countries can simply stop publishing unfavorable metrics.

The number of startups founded in China dropped from 51,000 in 2018 to just 1,200 in 2023, a 98% decrease. Roelof Botha attributes this collapse to unpredictable government regulations that stifle entrepreneurial risk-taking, serving as a warning for how policy could impact innovation elsewhere.

For years, China acted as a primary capital magnet within emerging markets. However, recent policy shifts have increased unpredictability, changing its role in global portfolios from a long-term, strategic investment to a short-term, tactical trade.

While investing in government-supported sectors like AI and semiconductors seems safe, it's a long-term risk. A government's priority is political—winning elections and preserving jobs—which will eventually conflict with an investor's goal of maximizing profit, leading to poor returns as seen in China.

The Freedom Index intentionally uses data from privately funded think tanks like the Cato and Fraser Institutes. This avoids potential data manipulation by governments, a lesson learned after the World Bank was forced to scrap its 'Doing Business' index due to coercion from China, one of its funders.

In countries lacking an independent judiciary, business success can be arbitrarily nullified by political whims. As seen with Jack Ma in China, entrepreneurs can be 'disappeared' and major business initiatives like IPOs can be scrapped overnight for non-business reasons, such as making a statement a government dislikes.

Instead of trying to have a view on everything, Herb Wagner's team embraces not knowing. They actively avoid complex situations, like Chinese property developers, where risks are opaque and dependent on government action. This discipline of knowing what you don't know is central to their strategy.

Profitable Chinese giants like ByteDance trade at a fraction of their Western counterparts' multiples. This "China discount" stems not from business fundamentals but from the unpredictable risk of the Communist Party "smiting" successful companies and overarching geopolitical tensions, making them un-investable for many.