Wall Street bankers need to be led, these Chinese-born bankers say,
by someone who can earn the trust and respect of Chinese officials and executives
but also know how to marshal the resources of a Western investment bank.
RED CHINESE CAPITALIST BANKERS
They are mostly in their 40s, born in China and educated in the United States.
They were raised as communists, but were schooled in capitalism.
China's deal makers
(born in China, educated in the United States)
National Post, Jul 20, 2005
by David Barboza, The New York Times
SHANGHAI - They grew up during China's Cultural Revolution, when Mao Zedong's brutal political campaigns in the 1960s and 1970s tore apart families, pitting children against their parents and husbands against their wives. Today, they are some of the most powerful deal makers in China, a group of rich and politically savvy investment bankers who are helping transform China's economy and restructuring some of the country's biggest corporations.
Every major investment bank now has a Chinese-born star banker: Goldman Sachs has Fang Fenglei; Merrill Lynch has Erhfei Liu; Morgan Stanley has Jonathan Zhu; J.P. Morgan has Charles Li; and Citigroup has Wei Christianson. They are so powerful, and so sought after by Wall Street's biggest firms, that their pay packages can reach $10 million a year after bonuses. The major Wall Street investment banks generally decline to talk about how their top-level bankers operate. Few of the Wall Street banks would agree to publicly comment for this article.
But a great deal is known about this crop of fairly secretive bankers: Most of them traveled west in the 1980s to study in the United States. They have since returned home to play key roles in a growing number of cross-border megadeals, and in the last year, Chinese-born bankers have been a driving force in a growing number of high-profile global agreements.
Erhfei Liu of Merrill, for example, was behind the scenes when LENOVO, China's biggest computer maker, purchased IBM's personal computer business. A few weeks ago, Charles Li and Fang Fenglei were at the center of things when the China National Offshore Oil Corp., known as CNOOC, one of the huge state-owned oil companies, made a bid worth $18.5 billion for Unocal. That deal alone could earn lawyers and investment bankers up to $300 million in fees.
It has been a long, sometimes tough, road for these bankers. For years, Westerners called the shots at investment banks operating in China, and they still do to some extent. Even now, some argue that the relationships and navigational skills of these new bankers are more valuable than their hard-core banking skills. "These are the new deal makers," said Jack Huang, head of the Greater China practice at the law firm Jones Day. "Morgan Stanley, Merrill Lynch, Goldman Sachs. Look at their organizational chart and you'll see a lot of Chinese-born bankers at the junior and senior level now."
The new power brokers have a lot in common: They are mostly in their 40s, born in China and educated in the United States. They were raised as communists, but were schooled in capitalism.
Of course, the large banks like to insist that they are not operating under a star system. And it is clear that these bankers are backed and supported by the power, prestige and resources of some of the world's richest investment banks. Liu at Merrill was a lead banker on China Shenhua Energy, Hong Kong's largest, though not its most successful, listing so far this year. And Liu spent part of his youth as a farmer in northern China, and later did a stint at Harvard Business School. He now leads Merrill Lynch, which is advising Haier in its bid to acquire Maytag.
These bankers are paid handsomely, the firms say, because they can get access to powerful officials and then navigate the complex byways of East-West deal-making. "These people are rainmakers and well-respected inside the bank," said Marie Cheung, a spokeswoman at the Hong Kong office of J.P. Morgan.
It is not just Chinese-born investment bankers who are gaining influence: Major law firms, venture capital firms and multinational corporations are also starting to turn to Chinese-born, Western-educated executives. Intel Corp.'s top executive in China is Chinese-born and Weijian Shan, the co-managing partner of Newbridge Capital Group, a U.S. investment fund, was a barefoot doctor during the Cultural Revolution. At Softbank Asia Infrastructure Fund, Andrew Yan, the president, and Jing Huang, the managing director, returned home to invest $40 million in an online gaming company in Shanghai called Shanda in 2003. In January, they sold that stake for over $500 million.
It may not come as a surprise that Chinese-born bankers are the new power brokers here in China. But for years, they often played second fiddle to bankers from Hong Kong, Taiwan, Singapore, or Western businessmen. Now, at the highest levels of deal making, the pedigrees are unmistakably Chinese. Charles Li worked in the offshore oil fields of northern China in the late 1970s for the predecessor company of CNOOC. Now he is the top banker in China for J.P. Morgan and one of the lead deal makers behind the CNOOC takeover bid for UNOCAL. Jonathan Zhu, who was born in Shanghai, studied Wordsworth at Cornell in the 1980s. Now he is Morgan Stanley's point man on what is expected to be one of the world's largest initial public offerings this year, the China Construction Bank. "Having the right cultural background in China and Wall Street experience: That is the most sought-after combination of skills," said Steve Xiang, a lawyer at Weil Gotshal & Manges and one of the few Chinese-born lawyers who worked on the LENOVO acquisition of IBM's personal computer business earlier this year.
Many of these bankers grew up during the Cultural Revolution. Some saw their parents imprisoned or denounced as "capitalist roaders." Some roamed the countryside as teenagers or worked as peasant farmers. And those experiences helped harden them for the boot camp of Wall Street. "I stayed in Beijing and as a student finished my primary and high school education (while my parents were persecuted)," Wei Christianson wrote in a recent e-mail message. But after the Cultural Revolution ended with Mao's death in 1976, many of them enrolled in college and then were among the first wave of students to study in the United States.
Most of these "red capitalists" later rose through the ranks of America's biggest investment banks, crunching numbers or writing legal briefs first in New York and then in Hong Kong, where the China operations of all the major investment banks are still based.
Yet even in the late 1990s, the top Chinese-born bankers were seen largely as "relationship men," whose primary job was to connect the firms with high-level Chinese government and corporate officials. Nearly every Wall Street firm privately acknowledges hiring some bankers for their connections, and in the past, they were the "princelings," or the sons, daughters, or relatives of high-ranking Communist Party officials, to help smooth dealmaking. The role of relationship bankers came under greater scrutiny last year when Margaret Ren -- the daughter-in-law of the former Chinese leader Zhao Ziyang and considered one of the most powerful Chinese-born bankers - was dismissed by Citygroup for misconduct, "Some of us hire connected children," one high-ranking investment banker said. "But we can't rely on them. They open the doors but we stil have to deliver the substance."
While China is still not a significant revenue or profit centre for Wall Street firms, the deals here are getting bigger and more lucrative, analysts say. And so the Wall Street firms are willing to pay millions of dollars to hire bankers such as Fang Fenbeli, 54, of Goldman Sachs, who is thought to have remarkable access to China's power elite. Part of their edge, these bankers say, is that they have gained access and can meet regularly with high-level government officials and the heads of major corporations. Success has come, however, from how well these bankers have anticipated the next moves of these corporations, or how smart their proposals have been for business deals.
And in China's opaque business climate, discretion reigns. When Lenovo was in talks with IBM, Lenovo called the secret talks Project V. And the two sides often met quietly at undisclosed locations in Hong Kong and New York. Wall Street bankers need to be led, these Chinese-born bankers say, by someone who can earn the trust and respect of Chinese officials and executives but also know how to marshal the resources of a Western investment bank.
Many bankers say being able to speak Chinese and English and being able to bridge the cultural gaps is critical. And having lived through the Cultural Revolution, many of these bankers think they are well-suited to dealing with Chinese government and corporate leaders. "When you're engaged in high-level negotiations, it's the nuances that are important," said Mr. Zhu, who last year was named chief executive at Morgan Stanley China. "In the M & A business, it's about understanding people." Foreigners still fly into China to complete big deals, experts say, but as Chinese crossborder deals get larger, these Chinese-born bankers will gain experience and take on greater decision-making roles. John Healy, who worked as the lead attorney for Clifford Chance when the firm advised LENOVO on its acquisition of IBM's personal computer business, said complex deals still require a lot of foreign bankers and lawyers who know how to execute crossborder deals. But, increasingly, he said, Chinese-born bankers and lawyers will take over. "They'll come to play an increasingly important role. Then people like me will become dinosours."
China's deal makers (raised as communists, schooled in capitalism). International Herald Tribune, Jul 20, 2005
CORPORATE COMMUNISM and CHINESE TAKE-OVER
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