Dear Wan Ching
I was taken by surprise when ICBC chairman Jiang Jianqing told me just before the Lunar New Year holidays that his bank, China�s largest, would be ready for a listing by the end of this year. He was unequivocal. I was afraid of getting it wrong, because there were still a number of milestones to cross before listing. So I asked him twice, �listing by the end of this year?� to which his reply was �yes.�
If what he says is right, then we have to release some of our own assessments on ICBC in the next few months, through our Chinese e-newsletters as well as in the print editions.
In all the years I have come to know him, I like Mr Jiang for two important reasons. Of all the chairmans of China�s big four banks, he is the one who has done the most work in preparing his bank operationally for a listing. This is a little told story.
Bank of China and China Construction Bank cleaned up their balance sheets but barely had enough time to strengthen their operations before listing. ICBC has spent serious energy streamlining their business models and operations over the past five years and is the most prepared of the banks operationally prior to a listing.
Secondly, Mr Jiang is genuinely the most hands-on of the big four chairmans and has sound views on the tactical areas of his business. All my regular meetings (and encounters at airports and conferences) with him over the past four years have been very gratifying in this regard.
For example, during this latest meeting, when I asked him how he would deal with the high liquidity levels in his bank�s deposit base and the restrictions that the central bank was putting on loans growth for Chinese banks, he gave me very precise numbers on how his bank had sold 180 billion reminbi ($22.3 billion) of bonds and other asset-based products to more 100 billion reminbi of their deposits to off-balance sheet.
On the next day, I met with Mr Guo Shuqing, chairman of China Construction Bank, fresh after his very successful IPO. That was the first time I actually sat down with Mr Guo, since his appointment as chairman last year, although I had met him during our Beijing conference in September. Please remind Joanna that I must meet with him at least once a year to follow through on the development of his bank.
The sense I got this time was he had spent the past few months preparing an organization he barely knew for listing. Mr Guo�s background was that of a policy maker, and a very good one at that, but he had never actually run a bank before. Given this and other considerations, I think that he did an outstanding job guiding CCB through its $8 billion listing.
Mr Guo and Mr Jiang had their respective jobs built for them in reverse. Mr Guo was thrown into the deep end and took CCB through a listing first and is now working on the operational parts of his bank. Mr Jiang on the other hand has spent the past five years preparing his bank operationally and is now ready for a listing.
My meeting with Mr Guo was a formal interview, so as soon as our colleague Wang Yi is able to confirm the text of the interview, can you post the text of the interview on our website and create a link so that our (paying) readers can read it. Also, can you please work with Wang Yi or Peter to write it up as CEO interview for the print edition of the next issue of the Journal. Please position the interview with Mr Ma Weihua, the president of China Merchants Bank as a boxed article in the same section, but make the text of his interview available online as well.
My sense of Mr Guo is that he is only now coming to terms with the operational and business aspects of his bank. He told me that he has scheduled some of his first trips to his branch networks across China only this year. Please ask our research as well as editorial staff to build on their assessment of CCB as a retail and commercial bank because many of our readers will be interested to see how this bank will be making real money to reward its investors.
I was intrigued to read in the week after my meetings that the general media outside of China were barking up Agricultural Bank of China (ABC) as the next bank to follow after the China Construction Bank listing late last year. I was reading articles like �The bank China does not want to reform� and others. Gosh, where do these people get their ideas from???
Sometimes (sorry to say) foreign media have a knack of provoking agendas rather than following them. In order of sequence for modernisation, ABC was not even on the plate because the Chinese government had many other priorities ahead of it. Whatever it is, let us just follow how the Chinese government responds on ABC, because I have seen how when the foreign media keeps hounding a topic, the government does respond to them and in an interesting way, complete the circle.
As it turned out, it was ICBC that surprised everyone by announcing their investors to kick-off their road to listing on the eve of Chinese New Year. Mr Jiang surprised even me. He told me that he was going to Davos for the World Economic Forum after our meeting, and so I was very surprised when they arranged for the investors signing ceremony practically on the eve of Chinese New Year in Shanghai. He must have flown back very quickly to squeeze in the time for the ceremony.
The BBC got wind of my meetings with Mr Jiang and Mr Guo and asked me on air who I thought the potential investors in ICBC would be, and I ventured a guess that Goldman Sachs, Allianz and American Express would be in the running. My guess was based very simplistically on the people Mr Jiang had mentioned to me during previous meetings and the fact that he was already doing business with them. He actually likes the chairmans of each of these institutions, so there are personalities involved, not just policy. So when ICBC announced exactly those same names, I smiled, gratified.
I think we should point out to our readers that this is the one important difference between these three investors in ICBC and the ones that took the original stakes in China Construction Bank, Bank of Communication before their listings and the proposed listing for Bank of China. Goldman Sachs, Allianz and Amex do organic business with ICBC right now and are real partners, in my view.
Temasek and Bank of America and a host of other investors in the other banks came in through the roof by helicopter and hoped to be useful to their invested entities. A lot of pleasant exchanges between them, I am sure, but the real value of their associations with the BOC and CCB is still in its honeymoon stages.
Mr Guo kept telling me how impressed he was about the commitment that Bank of America has shown in flying down their senior people to provide strategic help to CCB. On the other side of the coin, I had also met and assessed some of those senior BOA people at a conference in Copenhagen last September � I think it is going to be good fun to see how useful these Americans are really going to be in the long run. Needless to say, a lot of managing expectations. Put our writers on tracking this development � write a series of current account length pieces for the Journal.
You must understand why I put a lot of premium on Mr Jiang�s hands-on abilities and his ability to take ownership of his own business goals. In China, the leaders of the state owned banks are appointed with very strict remits from higher authorities, and these instructions are renewed to them every year.
If Mr Jiang wanted to, he could have been just an emissary of the state apparatus. But I have watched his close working relationship with his key staff over the years and how they worked very hard away from the glare of the international media that had its lights turned on the BOC and CCB listings. This man is in charge of his bank�s business.
The people closest to Mr Guo Shuqing at this stage in his bank are those who traveled with him on the CCB road show around the world, prior to its listing. Mr Guo is a sound policy man, so I am very positive about his role in now steering CCB to meet its numbers. But a lot will depend on how involved he becomes with his own business, or if he sees himself as a top-down administrator, as some of the others do.
In a sense, CCB is a far more stable franchise than ICBC. Because ICBC has a broad business base, it has competitors from every front. CCB has a stronger core business in the mortgage and building industries that are booming in China at the moment. Please get Peter or Benny to write regularly on the earnings outlook for CCB as our readers who are investors in the Chinese banks will want to know what the ROEs of these newly listed banks will be looking like in the next few years.
I don�t remember if I told you this before, but one test question I always ask chairmans and CEOs of Chinese banks whenever I meet with them is �which global bank you admire most.� Three years ago, the standard answer I used to get from all of them was unequivocally �Citibank.�
The answer I have been getting from all the Chinese CEOs I have been meeting in the past six months has been �HSBC.� Very clearly to my mind, Citi has been losing its appeal to the Chinese, from being the most admired bank in the country to a desperate player they can take advantage of. The way in which Shanghai Pudong Development Bank dragged Citi through the mud on its attempt to gain a larger stake in the bank is now an object lesson for all foreign banks wanting to do deals with Chinese banks. Please just tell the Citi�s PR people, �please, please, please speak plainly with us on China. No need to show off.� All their PR cannot negate the stories we get from speaking with the Chinese banks themselves. I think we can craft our assessments more constructively if they just told us what is happening as it is.
I think that the reason HSBC has been getting greater regard amongst the Chinese is because the Chinese identify with this bank structurally and the way in which HSBC builds its business organically resonates with the way the Chinese would like to see their own banks grow.
There is a danger from a brand perspective when foreign players take a heavy top-down approach in building their Chinese business. I am referring not just to Citi, but IBM or Boeing or any large business in any industry. The Chinese (or for that matter any self-respecting country) resent that because at the end of the day, if a local brand can do better, they would champion the local brand. Not that foreigners cannot do well in China. I guess that HSBC has been finding its comfortable positioning that the rest of us can learn from.
Use my notes for planning your own stories, and post this on my blog. No point just hiding this away, since I write so rarely anyway. I have a number of other thoughts on China, but I have written too long this time. We need to get closer to our readers this year, so please get this out and I promise to write more.
To read the interviews with the Chinese banks and other articles written by Emmanuel Daniel, please click here.