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Deals by bank stars transform China economy
By David Barboza (iht.com/The New York Times)
Updated: 2005-07-19 09:26

They grew up during China's Cultural Revolution, when Mao Zedong's political campaigns in the 1960s and 1970s tore apart families, pitting children against their parents and husbands against wives.

But now they are among 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.

Goldman Sachs has Fang Fenglei, Merrill Lynch has Ehrfei 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. And indeed few of the Wall Street banks would agree to comment publicly for this article.

But a great deal is known about these fairly secretive bankers.

Most of them journeyed west in the 1980s to study in the United States. They have since returned home to play important roles in a growing number of cross-border megadeals.

They were behind the scenes, for example, when Lenovo, China's biggest computer maker, purchased IBM's personal computer business. They are now pushing Haier, China's biggest appliance maker, to bid for Maytag. And a few weeks ago, two Chinese-born bankers were at the center of things when CNOOC, one of the huge state-owned oil companies, made a blockbuster $18.5 billion bid for Unocal.

That deal alone could earn lawyers and investment bankers as much as $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, their relationships and navigational skills are arguably more valuable than their hard-core banking skills.

But in the past year, Chinese-born bankers have been a driving a force in a growing number of high-profile global deals.

"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. It wasn't always like that."

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 schooled in capitalism.

Of course, the large banks like to insist they are not operating under a star system.
But these bankers are paid handsomely, the firms say, because they can get access to the powers that be 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 J.P. Morgan's Hong Kong office.

It may not come as a surprise that Chinese-born bankers are the new power brokers in China. But for years, they often played second fiddle to businessmen from Hong Kong, Taiwan, Singapore or the West. The balance of power is shifting, and 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 to CNOOC. Now he is the top banker in China for J.P. Morgan and one of the lead deal makers behind Cnooc's huge takeover bid for Unocal.

Shanghai-born Jonathan Zhu 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.

And Ehrfei Liu, who spent part of his youth as a farmer in northern China and later did a stint at Harvard Business School, now leads Merrill Lynch, which is advising Haier in its bid to acquire Maytag.

"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 to work on Lenovo's 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. 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.

But after the Cultural Revolution ended with Mao's death in 1976, many of them enrolled in college and were among the first wave of students to study in the United States.

Most of them 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.

By the late 1990s, so many Chinese-born bankers and lawyers were living in the Hong Kong Park View complex that it became known to the group as the "liberated zone," which is how the Communists referred to areas they captured in the 1940s.

Yet even in the late 1990s, the top Chinese-born bankers in China were seen largely as "relationship men," whose primary job was to connect the firms with high-level Chinese government and corporate officials.

While China is still not a significant revenue or profit center for Wall Street firms, the deals there are getting bigger and more lucrative, analysts say.

And so the Wall Street firms are willing to pay millions of dollars to hire bankers like Goldman Sach's Fang Fenglei, 54, and CS First Boston's Zhang Liping, 47, both of whom are believed to have remarkable access to China's power elite.

Zhang was one of the first western-trained bankers to operate in China in the early 1990s, when the markets were just opening up.

And Fang is now perhaps the most connected investment banker in China. A former People's Liberation Army soldier, Fang is close to the central bank chief, Zhou Xiaochuan, and is prized for his inside knowledge of Communist Party workings.

He is the only Chinese-born top banker without a Western degree, or English fluency. But that did not prevent Goldman Sachs from hiring him last year to run its joint venture investment banking operation in Beijing, and extending a $100 million loan to him.



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