You say princelings, I say elite corps of investment bankers

By Ben Walsh
May 23, 2012

A key part of the fascinating story of Bo Xilai’s fall from power is the opaque economic dealings of China’s ruling class. Or more specifically, of its so-called princelings, the oddly lyrical and wonderfully infantilizing term used for the now powerful descendants of former party leaders.

The New York Times has a great look at how princelings use their dynastic political and social power for economic gain. The son of former President Jiang Zemin, for instance, has brokered deals giving Dreamworks, Microsoft,  and Nokia access to the China and also manages numerous state-funded investments. His behavior is quite typical. Princelings, we are told, “often [play] central roles in businesses closely entwined with the state”, “[serving] as middlemen to a host of global companies and wealthy tycoons eager to do business in China” and have a Zelig-like ability to be “everywhere, as long as the industry is profitable”.

Thinking about this behavior in a slightly different context, aren’t princelings just really good bankers?

M&A advisory, principal investing, securities trading, access to public and private capital, regulatory capture and arbitrage, strong relationships and deep conflicts of interest — the whole spectrum of modern investment banking, good and bad, is there. If sheer complexity and scope of financial dealings are how you score a banker’s talent, Bo’s family seems to be pretty good.

And, if the business of an investment bank is, at least euphemistically, to bring together “people, capital and ideas”, this shouldn’t be surprising. Just as clients not only put up with their banker’s conflicts, but actually value those conflicts, Western banks and companies looking to do business in China seek out princelings for the same reasons.

All of which raises an obvious question, of the billions undoubtedly pocketed by the princelings of the second-largest economy in the world: are they a symptom of exorbitant graft? Or are they a bargain-basement price to pay, compared to the profits that America annually remits to its own investment-banking behemoths?

7 comments

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“Western banks and companies looking to do business in China seek out princelings for the same reasons.” (BW)

Kinda the same reasons that got WalMart so much ink about its Mexico opreation, but really – it’s more like what Bofors and Lockheed got into, isn’t it? But hey – if there’s money in it, how could it be wrong?

Corrupt, klepto-capitalism works just fine for the bribe payers and the bribe takers – it’s everybody else who takes it up the back-side, but who gives a flying …. about them?

Good show, Benny. You got what it takes to make it big on The Street.

Posted by MrRFox | Report as abusive

Greasing the wheel with bribes is now equated with M&A bankers?

Posted by GRRR | Report as abusive

Greasing the wheel with bribes is now equated with M&A bankers?

Posted by GRRR | Report as abusive

“Greasing the wheel with bribes is now equated with M&A bankers?” (GRRR)

Apparently, and either the bribesters or the banksters ought to be insulted – but which one?

Posted by MrRFox | Report as abusive

Anyone who has done business in business in places where regulations are opaque understands the usefulness of princelings, or whatever you want to call them. In the United States the increasing amount of government regulation has seen an almost exponential rise in lobbyists who,for a fee,will plead your case with the powers that be. Many lobbyists are former elected officials and hence have longstanding ties with the government bureaucracy. In a very real sense you might call them princelings. Investment bankers perform similar functions.

In countries where power is more concentrated there are fewer “go to” folks to cut through the red tape. There is a fine line between a bribe and payment for service, but a line nonetheless. One way to think of this is that a bribe is payment for doing something illegal like accepting a higher bid or overlooking unsafe products or practices.

Payment for accelerating the process is something else. I once lived in the Philippines and was told that a local driver’s license was needed and the cost was 200 pesos. That seemed like a lot when the actual license fee was 20 pesos. In my righteous youth I said that I’d personally wait in line as I would not pay any bribes. The reply was that the line was about three days long and even then the clerk, seeing that I was a foreigner, would ask for something before issuance. Either way I was going to receive a local driver’s license. I paid the 200 pesos and went back to work. I received the issued license that afternoon.

Over a thirty year international career on several continents this scenario or a variation thereof was repeated multiple times at multiple levels. The rise of Chinese princelings seems a natural consequence of China’s engagement with the world. What would make China different from everywhere else in the world?

Posted by OregonJon | Report as abusive

They look more like the old-style, now mostly defunct merchant bankers rather than investment bankers. Merchant bankers do all the things you mention, but they also retain a large role in such dealings as a principal, which is where they make most of their profits. Modern investment bankers who operate in these fields (rather than securitization and derivatives markets, where they do operate as principals) act primarily as agents. Being a principal, and hence a princeling, should be expected to be far more profitable to an individual than being an investment banker. If it were not, you would see foreign investment bankers hiring more princelings, because we would love to get ahold of their guanxi.

Posted by EpicureanDeal | Report as abusive

Agreed there are absolutely merchant banking attributes here – perhaps “investment banker” was too narrow a term but there’s no reason that term has to mean a pure agent per se or that a princeling has to be a principal. The princelings seem to be acting as agents at times, principals at others and sometimes both, much like GS, MS, et al before the crisis and Volcker. The line between agent and principal is blurred for princelings. And, at a level below and generation younger than the most prominent princelings, foreign banks are hiring princeling-lites for relationships/networks.

Posted by BenWalsh | Report as abusive