One of the more satisfying opportunities in my career has been the access that I have had to some of the Big Four banks in China. My friendship with Mr Jiang Jianqing goes back to 2003 when I first met him in Singapore, as he started laying the foundations for the bank’s ambitious modernisation. I used to meet him every 12-18 months. In one of those meetings in January 2006, I was the first person in the world to whom he confirmed that ICBC was going to be listed later that year.
I remember that morning meeting on a late January day, and that night I took the red-eye to Singapore, landing at 5am. I went to a public toilet at the airport to wash my face, and straight to the BBC first business programme for the day at 6.45am to inform the world that indeed ICBC was ready to go listing that year, which it did in October.
That news caught the markets off guard because the media’s focus was at the time focused on the Bank of China IPO in the same year, and the speculating that Agricultural Bank would be next. Mr Jiang must have been annoyed and brought forward the announcement of his own IPO, and my appearance on BBC and subsequently CNBC turned their attention.
Well, this year I achieved another interesting first. On the last day of March, for the first time ever, Mr Xiang Junbo, the chairman of Agricultural Bank of China, stated the conditions of the partnership that ABC will be looking for in preparation for its own IPO this year or next, in a meeting with me (and my colleague David Hendrickson who is based in Beijing, who together with his staff, Suzie Kang, made this and other meetings possible).
The transcript of the interview is in The Asian Banker website as follows (please copy this url and paste on the internet to access – for some reason clicking through is not possible):
The highlight of that interview to me was when he said plainly:
“We have three important grounds to choose a strategic investor. First, they need to withstand this financial crisis well, have good management and corporate governance capability and good achievement during this period. Second, they need to be experienced in agriculture, rural area business and microfinance loan extension. Third, they also need to be profound in risk management and the training of staff.”
Even as he was speaking, my mind was racing to think of what banks worldwide was still left standing that would fit his conditions. My guess was that only the French banks had enough of agricultural experience, and had that standing that he required to be a Chinese bank’s partner. It is for this reason that the current China-France standoff is unfortunate, because a bank like Credit Agricole would be a perfect fit. A few German and Spanish banks might also fit, but they are either too small or too provincial to be considered a worthy partner.
If you read the transcript, you will see in my line of questioning that I am using simple but direct English. The reason is that in most of these conversations, we speak with each other through interpreters, which if you are not simple and direct enough, can subterfuge the conversation.
One amusing part of the interview was when he suggested that Agricultural Bank of China will one day deserve a Nobel Prize because what they are doing in microcredit was much larger than what Muhammad Yunus is achieving with Grameen Bank. Well, we will see.
Still, I would say that I was very impressed by his forthrightness. I must say that I have a lot of faith in the leadership of the major Chinese institutions, because the men and women I meet at that level are nothing if not outstanding as individuals. They may be at the end of the day be regurgitating the party line, and there is more than a grain of truth in that.
Every year in March, there is a conference of CEOs of banks at the CBRC (China Banking Regulatory Commission), and inasmuch as I see some 8-10 chairmans or CEOs of Chinese banks a year, all of them are committed to the same objectives in that year, as if singing from the same song book.
Even then, they say it with considerable personal ownership, as if it were their own personal objectives, and then they execute. This is where it matters, whether they are just towing the party line or describing a personal stance. Given the fact that they do manage to turn around some of the largest institutions in the world and make them meet international norms within a short time, there is considerable execution skills at play.
Having said that, my most memorable interview with a Chinese chairman in recent memory was with Guo Shuqing, the chairman of China Construction Bank, in early February this year. The interview itself was great fun.
He is someone I have met on two occassions in the past, and so I wanted to move away from the “how is your business doing” approach. We covered so much ground, and more importantly for an interview during that period, a lot of conceptual ground which I do not normally get to do in China. Mr Guo is someone who thinks a lot about the conceptual aspects of China and his work and so was a worthy interviewee and he took the questions very well.
The transcript of the Guo interview is as follows (please copy and paste on internet, clicking through not possible):
Now, Guo speaks English very well, and so the conversation was intellectually direct. I loved the way he handled the questions, and we were even able to venture into the conceptual areas of public finance, because he held other ministerial positions like the chairman of the railway commission and so on. This part of the conversation was very important to me, because I am toying several ideas on how public-private partnership will evolve in the aftermath of the current economic crisis.
Commentators in several international media say things like “we are moving into a “Keynesian” world” – and almost none of them explore the ways in which the world of public-private partnership has changed in all of those years so that we can speak of things that are important today. No, we are not moving into a Keynesian world, at least not in the way that the US did in the Hoover years. There is a lot more private sector involvement today. The capital markets absorbs a lot of the cost today in a way that did not happen in the Hoover years. Anyway, I enjoyed exploring how one of the leaders in China’s disbursements of government fiscal stimulus viewed the impact on his economy and got a few hints.
One of the first things Guo told me when he met me was that he was very pleased with the strong loans growth in January 2009 for his bank. I, however, was very suspicious because the global economy was in a raging fire at that time, and entire banks and businesses worldwide were falling on the wayside, completely destroyed. But he was unperturbed. He thought that the growth in loans at his bank was real. Was it driven by government stimulus spending? Maybe, he said.
I made a mental note to look out for their first quarterly results, due out anytime now, to see if such strong loans growth in January and February were followed by strong non-performing loans or higher provisioning. I cannot see why it will not be so, but I know that it will be camouflaged. People I know in the iron ore import business were complaining at that time that buyers were abandoning them, leaving large stock at the docks in Shanghai and Shenzen. Factories in the south of China were falling like ten pins, with large numbers of people out of jobs and protesting in full public view in the cities.
The truth about the bank lending business in China is that we will never know what it is really made of, unless someone really digs deep. 70-90 percent of all loans in the larger Chinese banks are corporate. Of which, another 80-90 percent are to state owned enterprises. Rewriting of loans to state-owned enterprises is common practice, and all the more plausible during an economic downturn that is being propped up by new government infrastructure projects..
I have this nagging suspicion that this whole proposition that China is the world’s cheapest manufacturing nation hinges so much on bank lending practices to SOEs in China. It’s not the export finance part where export businesses in other countries suffer in obtaining credit, but the cost of land and equipment and the real cost of working capital that makes China the cheapest place on earth. For example, how can it be that China is a cheaper place to manufacture footwear for export to Bangladesh, and cheaper than Bangladeshi manufacturers?
In any case, I do suspect that the first quarter results will camouflage the NPLs. If it does not, there is no reason not to believe that bad news from Chinese banks can trigger another round of global spiralling down of the markets for at least the next two quarters.
Now, having known Guo and Jiang over a period of time, they come across to me as very different from Xiang. I have met Guo on two previous occasions, the first when he first became chairman of the bank in 2005. I saw how he started, like Xiang is starting now, new to banking and very tentative in his ways, and then growing into the old hand with a firm idea of his business as he is now.
They are seasoned leaders of institutions that have been successfully IPO-ed and are well regarded outside China. Although Xiang is technically at the same level in seniority and had served as a vice chairman of the PBOC (People’s Bank of China) before, he is new to Agriculture Bank, and so we will give him another two years or so to become comfortable under his skin.
Just this month, in April, I met with several CEOs of Indonesian banks, mostly for courtesy calls and so there are no interviews and I can’t discuss any specifics in a blog. But the Indonesian CEOs are mostly interested to shore up capital At least one was very happy that his rights issue was twice over-subscribed and another was wondering what it will take to make the global markets interested in Indonesia.
All things considered, the current elections in Indonesia and the strength of the economy makes Indonesia a very promising country indeed. The only place where they are being stymied from being any more attractive to foreign investors is in the exchange rate. To be honest, Indonesia should go back to a managed rate policy. The IMF induced floating rate is a piece of rubbish. No country in the world will be able to function in that kind of regime.
(PS: I do not do editorial work outside of interviews with chairmans and CEOs of significant institutions… and even here I am helped by my very able staff and colleagues.)
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