Banking in China (political)

[quote=“4nr”]
Concerning the Bank of China IPO, I was trying to find an article I read the other day which outlined why the IPO was in Hongkong. It went on to discuss how in Hongkong the criteria is easier for listing there. Some of it had to do with length of report times, another issue was the conformance to the Sarbanne-Oxley act where in the states, the managers have to sign sworn statements that their financials are accurate and truthful, else they are personally held liable for criminal prosecution.[/quote]I’ve read several such articles, and I’m sure they’re a factor. Hong Kong has always had an incredibly liberal business environment (including the ability to register a company with $1 HKD of startup capital), and this extends to the exchanges as well. With Sarbanne-Oxley, the burden of listing in the United States is pretty significant.

But equating the BOC’s preference to list on Hong Kong with either known fraud or an inability to list elsewhere doesn’t make any sense. $9 billion, mostly institutional, dollars flowed into BOC’s bank accounts this past week. There are numerous exchanges that would’ve traded body parts for that sort of deal flow.

Lord Lucan,

Listen, I don’t want to get off-point because I actually appreciate most of your extended discourse. I’ll just close out this mini sub-thread by saying your comments about the BOC IPO reeks of unsubstantiated exaggeration. If the WSJ coverage of China is truly pathetic, then I’d respectfully encourage you to present some other papers in the “financial press” (Financial Times? Economist?) which called the BOC IPO a form of “international aid”, and/or suggested that there would be loss of investor confidence if the BOC listing had been elsewhere.

The BOC IPO has specific risks that are greater than the industry standard for a bank of this size, but the BOC IPO was courted by exchanges and welcomed by institutional investors worldwide. It was a good business deal, period.

See, now this is the kind of Lord Lucan thinking that I can get behind.

I see mr_boogie misinterpreted this as “bringing in foreign talent”. That’s not the point, of course. If we look at the issue objectively, Taiwan’s major competitive advantage for at least the next decade (but slipping quickly) is its cultural and economic ties with the mainland. It will succeed not on the basis of offering really comfortable homes and negotiable signs for European ex-pats; it will succeed by combining an established financial/legal system with plenty of domain knowledge of mainland China. Taiwan is already at a huge disadvantage when compared to Hong Kong since its legal/financial system never reached the objective professional standard that was achieved in HK; but now it’s making the task even more difficult by essentially throwing anyone that expects to deal with mainland China off the island.

cctang, I do believe that Taiwan has to push the foreign talents before they start moving to HK or China. Good thing that up till now, there is no real investment in HK for IC design centers, or it would be a complete blow on Taiwan’s future aspirations.
Tomorrow, the Taiwanese will start their show in Taipei, and the inovations are mostly from US or European IC centers. Nothing much new will come at Computex. This is the tendency that Taiwan has to invert.
And no one is asking for really confortable homes and negotiable signs for European ex-pats -> I was talking in general as for any foreigner from a developed country that has capacity, creativity and talent to come to Taiwan and develop himself in a good environment - no matter what he is good about. This guys cost a lot less to generate than people from the universities. Do you really think that all the Portuguese brains are in Portugal, where the sallary for an Engineer is of about 1000€?

[color=red]Note: This thread has been split off from the [url=http://tw.forumosa.com/t/why-long-term-residents-tend-to-support-independence/27918/1 foreigners want Taiwan independence"[/url] thread. Some of the posts here relate to that thread so a bit of to-ing and fro-ing may be necessary[/color]

[quote=“cctang”]Lord Lucan,

Listen, I don’t want to get off-point because I actually appreciate most of your extended discourse. I’ll just close out this mini sub-thread by saying your comments about the BOC IPO reeks of unsubstantiated exaggeration. If the WSJ coverage of China is truly pathetic, then I’d respectfully encourage you to present some other papers in the “financial press” (Financial Times? Economist?) which called the BOC IPO a form of “international aid”, and/or suggested that there would be loss of investor confidence if the BOC listing had been elsewhere.

The BOC IPO has specific risks that are greater than the industry standard for a bank of this size, but the BOC IPO was courted by exchanges and welcomed by institutional investors worldwide. It was a good business deal, period.[/quote]

Just two points on this: I don’t see why my comments should only be valid if the Economist or FT or, God forbid, Bloomberg (most of whose stories are written by illiterate teenagers, to save money) agree.

The Bank of China is an appallingly risky buy. No-one has even the slightest clue how much, if anything, it might be worth. You and I disagree. Fine. We will see what returns the BoC brings to shareholders.

In the end it doesn’t matter to the CCP where the BoC lists, as the money will roll in regardless, and HK is under its control anyway. Yes, any bourse will eagerly list any Chinese government stock regardless of how dodgy it is.

Foreign “talent”: My point is that in all things Taiwan should enlist the help of experts regardless of where they come from and pay them the going rate. It will not do that, either because of xenophobia, or because in the end the difference between any contracts priced for the good stuff (Volvo buses, for example) and the cost of the cheapest internationally available alternative (crap polluting buses from Eastern Europe) goes in some corrupt official’s back pocket.

First thing is to set up an ICAC with a non-Chinese/Taiwanese foreigner *in charge from who reports directly to the president. Obviously, er, the quality of the president would have to be improved, but it would be a start.

*To forestall a Taiwanese version with the president’s brother in charge etc etc

Lord Lucan,

Of the six billion people on this planet, many will disagree with me on many points. Everyone’s entitled to their own opinions, you and I included. If you want to claim that you find the BOC IPO to be too risky to justify its current valuation, I see no problems with that; in fact, any specific price the BOC trades at happens to be the median level of market opinion: half of the investment dollars out there believe it isn’t worth that amount, while half of the investment dollars out there believe it is.

You’re entitled to your opinion, but if you’re going to claim that the “financial press” supports said opinion, then perhaps you sould bring in substantive articles backing this claim… as it is, we’re only told we should ignore the Financial Times, Economist, WSJ, and Bloomberg. I’m not here to defend their reputation… but where are your far superior alternatives that sheds the true light on BOC’s actual risks? Gorden Chang? Rawski?

As far as the need for talent goes, hiring the best at an appropriate price should always be a goal. The idea that there has to be any identity associated with the position, including the claim that the position must go to some laowai, is a flawed one.

Of course we all know that markets are efficient and assets are always valued correctly/rationally, right? :smiley:

If BoC listed on the HKG exchange because it is the best exchange, then it was the right thing. If the BoC was listed on HKG a) as a make-work program for HKG professionals b) to avoid certain disclosure or internal control requirements, then it was a poor decision and in the longer run you are only creating a problem. These things tend to be a bit like gravity, sooner or later reality catches up. Time will tell.

Given the lapses that BoC has had in the recent past in terms of internal controls, and given the lack of transparancy on NPLs, I would say that the valuation could be challenged. However, fundamentals don’t always tell the full picture. If you believe that certain speculators will ignore these risks and invest anyway, then there may be some opportunity for short-term growth…or for shorting…

Not necessarily. You forget that the reason for the position in the first place is the inherently “corrupt” nature of Taiwanese politics. If you think that is a racist statement, then I can quote 23 million Taiwanese people saying the same thing. The job has to go to someone who will be seen as uncorruptible in the Chinese/Taiwanese sphere of influence. It would be almost improssible to find a Chinese/Taiwanese person who would be believed by Taiwanese to be uncorruptible. Almost impossible. Someone plucked out of Europe or America however with a track record of incorruptibility and put in the chair for five years is likely to be a lot more credible. I would specifically prohibit the person from being Taiwanese or mainland Chinese. It worked in HK. The chairman was a gweilo. Personally, I would appoint a retired British policeman or a Commonwealth judge. Or Nelson Mandela. Or me.

You either want an arm’s length truly independent ICAC chairman or you don’t. Once you start watering it down then you are back to the likes of the head of the Securities and Futures Commission chairman being accused of securities fraud. Okay. Let’s make the heads of the triads head of the ICAC on a rotating basis. I mean after all, it’s the triads that run the country anyway. Compared to the politicos, they’re squeaky clean.

You see, even having one white policeman here would bring out the little nationalists and racists in Taiwan. One white judge. A white man telling the monkeys on drugs in the presidential office how to run a small country in Asia. (God knows we’ve run a few in our time! The rather more successful ones, too, I might add!) Bloody foreigners telling us what to do in our own country! What do they think this is - Hong Kong?! Colonialism! Pah! (Meanwhile, the greatest colonialists of the last 100 years, the Americans, shite ice cream in different flavours. And the Japanese? Oh we love them!) Nope, you know we are shit hot at making ickle Asian countries work. We will make your island work on a BOT basis for 50 years and this time we promise not to shoot the natives. Worth a try?

I tell you one thing: The triads here would cack their bags if the HK police and ICAC were brought over here and organised in appropriate numbers. Which is another reason it will never happen.

[quote]Not necessarily. You forget that the reason for the position in the first place is the inherently “corrupt” nature of Taiwanese politics. If you think that is a racist statement, then I can quote 23 million Taiwanese people saying the same thing.[/quote]I’ll judge whether the position is racist by your answer to one question: do you believe US-trained ethnic Chinese could take this position?

You mean… perhaps like the European professionals in charge of Thompson CSF, the French arms manufacturer accused of paying bribes/commissions in order to gain contracts for the Lafayette frigate deal?

Singapore and Hong Kong are both ethnic Chinese communities recognized world-wide as having low levels of systematic corruption. This is not an ethnic or cultural problem; this is a Taiwanese structural problem. It will be addressed when the structure is addressed, not when we bring in an “incorruptible” white man from abroad. If the solution really was to seek out foreign assistance, then why shouldn’t Taiwan recruit an equally talented bureaucrat out of either Hong Kong or Singapore… even if he falls within the “Chinese sphere of influence”?

[quote=“Elegua”]Of course we all know that markets are efficient and assets are always valued correctly/rationally, right? :smiley:

If BoC listed on the HKG exchange because it is the best exchange, then it was the right thing. If the BoC was listed on HKG a) as a make-work program for HKG professionals b) to avoid certain disclosure or internal control requirements, then it was a poor decision and in the longer run you are only creating a problem. These things tend to be a bit like gravity, sooner or later reality catches up. Time will tell.

Given the lapses that BoC has had in the recent past in terms of internal controls, and given the lack of transparancy on NPLs, I would say that the valuation could be challenged. However, fundamentals don’t always tell the full picture. If you believe that certain speculators will ignore these risks and invest anyway, then there may be some opportunity for short-term growth…or for shorting…[/quote]

But it’s not run like a western bank, and China is not run like a western country, and only a fraction of “the Bank of China” will have been listed, and inside China, the stockmarket does not work like a western stockmarket. You probably know this, but there are a lot of people who think because China looks “capitalist” it is “capitalist”. It’s not. It’s so not capitalist it’s not funny. Rags like the WSj will tell you “Gee China looks a bit like one of those bad-ass commie countries, but it’s totally capitalistic, dude!” No. It isn’t. Raising money to invest in stuff is not the definition of “capitalist”. It’s still the same old CCP underneath. Actually, not even underneath. Right there on the surface.

Only time will tell on the BoC listing, but I lean toward his Lordship’s view on this. I imagine that a sketchy bank that enjoys strong political backing, as the BoC does, could have been listed profitably on another exchange (though Sarbanes-Oxley would have kept it out of the US), but I believe that HK was chosen specifically because there would be less scrutiny here.

Ten years ago, many thought that the HK exchange had the makings of a truly international market that would attract a fair share of listings from all over the world. That has not happened. The HK exchange is still an overwhelmingly local exchange. It has attracted far more listings from the mainland than from abroad in the past few years. At a time when most 1st rate exchanges are looking to merge with similarly run exchanges in other countries (i.e., NYSE and Euronext), nearly all of the noise generated by HKEx is about listing mainland companies. They are not courting nor are they being courted by any exchanges in other countries. At a time when most big exchanges are looking to merge with others in order to stay attractive, HKEx instead seems content to just make the easy money brought by mainland listings. I wouldn’t say that no mainland companies can swing a listing on the LSE or NYSE, but for banks, which are even more closely tied to government than companies like Haier, HK will always be the first choice since the SFC here will never have the power or will to scrutinize them thoroughly.

Does this mean that HK is a crap exchange that is going down the tubes? No, but it is not a leading international exchange. It is a local one that is happy to list some of the better companies from across the border rather than compete for listings by stronger companies from all over. BoC chose the strong local exchange over truly international, mega exchanges like NYSE or LSE. Make your own judgement as to why this was done. I have my own opinion.

I have to say that I agree with Lord in terms of bringing some damn person with a clean record to rule this damn country.

You want names? Jean-Claude Juncker, actual PM of Luxembourg, and they guy who everyone wanted to be running the EU (instead of that portuguese good-for-nothing). Strong, authoritarian, speaks a lot of languages, knows more about Economy than most people would ever dream (for some reason he is called Mr. Euro). Also, a guy who doesn’t care about what others say about him. He just follows his own way. Without any doubt one of the most important persons in Europe.

Because what Taiwan needs is Corporate Governance. It needs someone from outside with a good record on cleaning companies to be in just checking things. Look at TSMC, they have no problems hiring top people to audit their work. Let us be frank - you need top people to do top stuff, no matter what bread or sex they are and like.

[quote=“cctang”][quote]Not necessarily. You forget that the reason for the position in the first place is the inherently “corrupt” nature of Taiwanese politics. If you think that is a racist statement, then I can quote 23 million Taiwanese people saying the same thing.[/quote]I’ll judge whether the position is racist by your answer to one question: do you believe US-trained ethnic Chinese could take this position?

You mean… perhaps like the European professionals in charge of Thompson CSF, the French arms manufacturer accused of paying bribes/commissions in order to gain contracts for the Lafayette frigate deal?[/quote]

No, not like them. Exactly not like them. I wouldn’t dig up Stalin or Hitler to run it either. A US-trained ethnic Chinese could run it certainly if his/her connections with Taiwan or China did not open the way to undue influence. I’m sure the methods various countries’ secret services use to vet people could be used to assess that. In any case, anyone chosen would have to undergo a reasonably deep vet.

Yes. I mean Chinese sphere of influence in terms of “able to be bribed by the Chinese or Taiwanese government”. Obviously that sounds laughable when we consider the self-bribing politicians we have at the moment, but there are of course people out there all over the world with strong principles. Ideally you would hire a Taiwanese ex-cop or judge, but, well, they’re kind of part of the problem. Someone clean from HK or Singapore sufficiently well paid would on the face of it be very hard to bribe and very suitable. Might be easier all the same to find a non-Chinese to do it. It doesn’t really matter. Ideally, this person would only be making enemies among the underworld, not at high political levels. I don’t see the Taiwanese government or the CCP taking out a hit on him. I would definitely look at trying to hire ex-HK ICAC staff, whom I imagine are predominantly ethnicly Chinese. There is no reason the ICAC chairmanship wouldn’t be seen as a valuable and high-status role, a guardian of the integrity of the political process. Something a US-educated Taiwanese/Chinese person, or any lawyer or law enforcement officer from anywhere would aspire to be. It would certainly be one of the highest-paid political jobs in the world. It would have to be. You would almost certainly have to exclude mainland-born recently naturalised US citizens, though, even if merely on grounds of national security or let’s face it, common sense. ABC applicants would almost certainly have to be of non-PRC origin.

Is no-one going to rise to the bait and charge me with “colonialism” and “imperialism”?

[quote=“Lord Lucan”]But it’s not run like a western bank, and China is not run like a western country, and only a fraction of “the Bank of China” will have been listed, and inside China, the stockmarket does not work like a western stockmarket. You probably know this, but there are a lot of people who think because China looks “capitalist” it is “capitalist”. It’s not. It’s so not capitalist it’s not funny. Rags like the WSj will tell you “Gee China looks a bit like one of those bad-ass commie countries, but it’s totally capitalistic, dude!” No. It isn’t. Raising money to invest in stuff is not the definition of “capitalist”. It’s still the same old CCP underneath. Actually, not even underneath. Right there on the surface.[/quote]Me thinks you might benefit from actually reading the Wall Street Journal or some other financial press once in a while.

The fact that the BOC is not run like a Western bank is exactly why the BOC went public; it doesn’t need capital, it needs international oversight/participation from equity partners. And as far as “only a fraction of the BOC having been listed”, true, as is the case with any SOE… but hopefully you understand that any Western corporation can also carve out different classes of equities before listing. There’s certainly no generic requirement that a publically listed company has to be giving up majority control with its publically tradable shares.

As far as “it’s still the same old CCP underneath”… which same old CCP? The one of 1911? 1934? 1949? 1957? 1966? 1976? 1989? 1994? 2001? Or 2006…? Are you seriously claiming all of these are the same?

[quote=“cctang”]Me thinks you might benefit from actually reading the Wall Street Journal or some other financial press once in a while.

The fact that the BOC is not run like a Western bank is exactly why the BOC went public; it doesn’t need capital, it needs international oversight/participation from equity partners. [/quote]

Really? Methinks you are a little bit patronising in your assumptions about my reading habits and further that it will come to bite you on the arse sooner than you think. To show off your superior knowledge of the finance industry, and the banking environment in China in particular now that you have rather foolishly suggested I read “the Wall Street Journal or some other financial press once in a while”: Name any bank in China which after gaining a foreign parter has any influence of any part of the bank’s operations. If you can’t find one, explain how having 10% of the BoC owned by ten thousand tiny shareholders is going to improve corporate governance at that bank, with reference to its recent “corporate governence” problems such as embezzlement, theft, corruption, and other misdirections of bank funds. Explain in detail why HSBC and Citigroup have not rushed in a panic to buy a Chinese bank, any Chinese bank. It’ll all be in the WSJ. I want discussions of NPLs, ownership structures, coverage estimates, earnings growth forecasts, and justifications of why the estimates are reasonable, and an explanation of why analysts estimates of total NPLs in China vary by hundreds of millions of US dollars. It’s all there in the WSJ. They’ll also tell you how the foreign banks are going to “teach” the Chinese banks how to instruct their hundreds of branch managers to make loans according to modern principles of risk management in direct opposition to the Chinese central and provincial governments which are directing those same managers to make fixed or no-interest state-backed loans to various SOEs and public works, and not-so-public works. That would be interesting. I thought it was just all about money. But no, the CCP is selling its banks. Please also explain why it wants to do that.

As I said before, I don’t need to read ignorant foreign hacks writing 500 words to a deadline about banks they know absolutely nothing about in a country they know nothing about. Find me one story written by any journalist which provides any analysis of any banking purchase by a foreign company of any Chinese bank. Anything. Except the Economist. I have just read all their essays on Chinese banking over the last two years. They’ve got the main arguments pretty much down, although they fail to make a decision one way or the other. Wise enough I suppose, because nobody really knows. (You like the WSJ, eh? Must read today’s AWSJ at lunch then, might learn something ha ha ha.)

Those are your tasks. Go on then. Pick something informative and incisive about Chinese banking from the WSJ. Real numbers, real analysis. I want my socks blown off by those financial whizzkids. It must not however be “Ooh there are lots of people in China. Ooh when they’re all rich it’ll be fab. Oooh they will all have credit cards. Oooh the streets are paved with gold…” sort of nonsense. Heard it all before. Usually comes on the back of figures plucked from the sky. Ludicrously accurate ones, like: Net loan income CAGR in China will be 5.786345% from 2006 to 2020 (because there are lots of people and they will all be very rich soon approximately please trade this stock it’s nearly bonus time and I’m going on a roadshow next week and have to get this bloody report out or I’ll have nothing to put in front of the fund managers)

There has been no substantive change in the system of government in China through the last three dynasties, including the CCP. The wool fell away from the eyes of the public in around 1961, the first year of major famine. This is another topic. Not for this thread.

Yes, but this is exactly why I didn’t queue for shares, and exactly why my wife wishes that she had never bought MTRC shares a few years ago. The WSJ may not be showing doubt about BoC, but there are plenty of people here in HK, some in the business pages of the papers, who skipped this IPO precisely because majority control of BoC ultimately lies in the hands of people who in certain situations may have interests other than profit for the bank. Does that make it a bad IPO? No, but it’s enough to make some of us decide to put our money somewhere else.

[quote=“Lord Lucan”]

Sadly this is for reasons other than a lot of new inventions.

My crack dealer analogy: The point essentially is that no matter how efficiently you run a factory you cannot reduce your costs below zero in the long term, even using prison labour. Let’s leave out the Mexican then. He could have been Peurto Rican. It’s just an analogy. In the manufacturing value chain, the manufacturer in China is not the one making all the money. The inventors, designers, and distributors/retailers (in the target market) are the ones making all the money. Taiwan needs a new business paradigm. Taiwan needs to invent things that no-one else has and sell them round the world, or provide services no-one else can and sell them to Europeans and Americans. Otherwise Taiwan is still just driving the lorry.

So, we need an education system that teaches people to think, and to get the entire brains of all China operations back in Taiwan. Direct links. Twenty 747s a day between Shanghai and Taipei. We need design schools and educational support services for the mainland machine operators and middle managers in Taiwan who will be brought here for training. We need universities that are going to teach people from all over the world what the Taiwanese know about business in China, and which of course they will pay dearly for. We need international research institutes and media centres in Taipei. We need the AP Regional Operations Centre, not talk about it. We need open work permits for all and freedom of labour. We need to use what little freedom of movement we have in Asia to make Taiwan a centre for people to base their operations in. This is not rocket science, and Taiwan has the money for it. None of this involves any loss of sovereignty. It does require leadership and statesmanship to pull off though.

Why are none of the political parties talking about any of this? A chance to make Taiwan one of the richest and most successful places in Asia, in the world is being thrown away. There should be 50 foreigners employed by central government writing speeches, manuals, guidebooks, adverts, sorting out the standard of English at governmental level, taking the Indians on at their own game. Outsource to Taiwan. All manner of foreign experts on everything need to be brought in and asked how we are going to do this. There is no need to reinvent the wheel. Once the place starts looking like an international centre for business in China, then we need a band of world-class English teachers to ensure the standard of teaching is good. Then we bring in educational experts to design curricula that prepare the next generation of inventors and problem solvers. And so on and so on. In 20 years all major Taiwanese companies doing business in China would be located here, as would a large number of foreign ones. There needs to be a huge global expatriate community here, replacing HK and Singapore and Shanghai. For once, ideas like this are not limited by funds. Anyone want to even talk about it?[/quote]

When I did a small stint for TAITRA (http://www.taitra.com.tw), many corporations said they already do business with China so they weren’t interested (although ironically they ended up dealing with factories in China, owned by companies listed under TAITRA anyway). So the “outsource to Taiwan” problem is that Taiwan does OEM, not a name brand. So more corporations seem to have gone to China. It seems like there needs to be a perception change? I don’t know how to word my meaning effectively but it should be sufficient.

Phillippe Starck (http://en.wikipedia.org/wiki/Philippe_Starck) said a year ago that Taiwan basically made everything but as an OEM, and not under its own brands, and that it was time for Taiwan to build strong brands as it has everything it needs.

I tend to agree.

However you’ll need someone with say, someone with whom various government officials will listen to. As for getting more foreigners to come to Taiwan, I’m working on that, you’ll see results (hopefully) in half a year.

Adding fuel to the fire, there’s also the story about how Ernst and Young Retracted a recent China Bad Loans Report . There are also many stories on Big bank problems looming in China (sorry, may have to go to the root: chinaconfidential.blogspot.com and do a search).

Epidemic corruption is what is, always has been, always will be the downfall of China (and Taiwan). There is no hiding this fact. DPP fall from grace is a perfect example. Sadly, even in academia, there are corruption problems: A Chinese study found that 60 percent of PhD candidates admitted to plagiarism, bribery.

Thanks LL for articulating the details. Its a broken record listening to the CCP apologists all the time.

How about a small letter sent to Ernst and Young - “either you retract or we will retract you?”

Of course I meant “billions of US dollars”.

E&Y incorporated an estimate of future NPLs into their numbers, which the CCP number maker-uppers didn’t in theirs. In this case, as both the Chinese Communist Party and All Accountancy Firms have long histories of making numbers up out of thin air, it’s hard to know whether 100-odd billion or 900-odd billion is the closest figure. I have a rule though that if the CCP says a certain figure is X, the one thing you can be entirely sure of is that it isn’t X. My estimate which I have just made up without any research is US$657.85934534573894 billion and it is as likely to be accurate as anyone else’s. That number is similar to the amount an accountancy or consulting firm will charge you for their staff of highly experienced 23-year olds fresh from MBA school to work that sort of thing out.