Changing China

Giant on the move

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“Leasing” bankers to CIC


Since late last year, China’s $200 billion sovereign wealth fund, China Investment Corp., has “borrowed” more than a dozen Morgan Stanley investment bankers, mostly from its Hong Kong office, to give advice in various areas ranging from real estate to debt trading.

Cost to CIC? Nearly Zero.

Benefit to Morgan Stanley? Priceless.

The banker exchange is an outgrowth of the investment bank’s relationship with CIC, in which CIC took a stake in Morgan Stanley. While CIC has taken a loss so far in that investment, it has paid off in other ways.  

While remaining on the Morgan Stanley payroll, the bankers were relocated to CIC’s Beijing head offices to work there for different kinds of temporary jobs, acting like consultants with no power to make decisions on deal-making.
During the bankers’ “lease period” at CIC, Morgan Stanley paid their salaries, although the fund might have offered some non-cash benefits, such as free public transportation cards or lunch coupons to such special expat staff.
In fact, it’s not just Morgan Stanley. Many other fund houses, asset managers and even law firms are happily lending talent to CIC for free in the hopes that they can build solid and long-term partnerships.

Even if China Investment Corp. paid these bankers and experts, it wouldn’t come near what they are already making. For a monthly salary, a vice-president level job at CIC can only match the monthly housing allowance for an entry-level investment banking analyst in Hong Kong, roughly between HK$20,000 and HK$25,000.
Some in the financial industry describe the value of such “lease” arrangements as offering unique opportunities to gain a clear picture of what CIC wants and how the fund works or even what the top executives’ personal preferences are — German beer or French wine, for example. That goes beyond market knowledge but is highly valued intelligence.


Heard any new theories about the likely shape of the global economic recovery?

At a financial forum in Hong Kong this week, Zhou Yuan, a senior executive from China Investment Corp (CIC), the $200 billion sovereign wealth fund, offered a mischievous twist on some previous formulations, as well as a nod to the importance of China in any global recovery.
In an effort to lighten the mood among a group of foreign economists, who had been arguing about whether the global recovery would be W-shaped or V-shaped, Zhou offered a perspective he said he’d heard from another source.
“Whether China’s consumers will lead the world into a more prosperous stage of economic development, I don’t know, but we certainly hear some comments to that effect,” said Zhou, CIC’s head of special investments.
“It’s clear that the economy (recovery) is something going into the V-shape,” said the English-speaking Zhou. “Someone also told me that the economic development worldwide will take the shape of”
 After a moment’s reflection, his audience understood and broke into laughter.
 Zhou explained: Since shortly after the collapse of the Wall Street bank Lehman Brothers last September, global markets have experienced volatility that has often seemed to take a “www” shape.

Now, Zhou said, we are starting to hear more and more economists talking about a V-shaped recovery, although some remain cautious because they are worried there may be a so-called “double dip” in the financial crisis, the worst since the Great Depression.
Whether it’s a V or W shaped recovery, Zhou joked, the ultimate solution to the crisis is China, eg “CN”. 
Zhou noted that China’s urbanization in the next few years — turning villages into mordern towns or farmers moving to nearby cities to become workers — will be a key attraction for foreign investments in China, which will in turn help China continue its contribution to global economic growth.
From urbanization comes consumption. And if China can produce enough consumption to help lift the global economy, may sum up the real path of this financial crisis. Or at least some Chinese bankers are banking on it.