George Chen

By George Chen
The opinions expressed are the author’s own.

Few people outside of China really know what B shares are.

“B shares? Does that mean they are not as good as A shares?” That’s a typical question I hear from foreign friends when they first come to the mainland market and by chance learn some buzz about the B-share index.

B shares probably only attract public attention when trading gets excitable, as is the case now. The U.S. dollar-denominated B shares index sank more than 7 percent at one point on Thursday after ending down more than  5 percent on Wednesday.

So, what happened?

First, the B shares index tumbled on Wednesday without any clue or warning, surprising most people in the market. On Thursday, it retreated further, even after Beijing attempted to clarify a rumour about capital gains tax that was believed to have triggered the market panic. China was  not likely to start taxing investors on capital gains any time soon, a tax official told Reuters on Thursday.

China first launched the B-share market in the early 1990s, as part of the government’s “opening up” policy, with shares traded in U.S. dollars on the Shanghai stock exchange, and in Hong Kong dollars on the smaller Shenzhen bourse. They were mainly intended for foreign investors, especially those from Hong Kong, neigbouring  Shenzhen.

At the time, investors from outside mainland China were not allowed to buy yuan-denominated A shares, until Beijing launched the Qualified Foreign Institutional Investor scheme (QFII) in 2002 allowing licensed foreign investors to invest in A shares.

Also in the early 2000s, B shares, China’s only equity market fully open to foreigners became marginalised when Beijing stopped new B-share offerings by Chinese companies. In comparison with Shanghai, only few B-share companies are listed in Shenzhen for legacy reasons, with the Shanghai exchange playing the dominant  role.

Since the B-share market became marginalised, market speculation has been prevalent.  A merger with the much larger  A-share market is widely anticipated and, in the view of many investors, should benefit B shares, partly because of the appreciation of the yuan, in which A shares are traded.

Recent media reports suggest a number of large multinational corporations, for example, HSBC (born in Hong Kong and Shanghai, not London), have been selected for a yuan-denominated share issuances on the Shanghai stock exchange, where a brand new “international board” will be set up for such foreign IPOs.

This is exciting news and exactly what Shanghai officials want to fulfill the city’s ambition of becoming a leading financial centre, as it was in the golden era of the 1930s.

The prospect of an international board makes the B-share market seem even more boring, lowering expectations for the merger of B-share and A-share markets. Investors say B shares are not a priority for the Chinese securities regulator on and all  Beijing wants is probably to offer a plan to close the B-share market as painlessly as possible.

In other words, as Chinese leaders often like to say, the historical mission (for B shares in this case) has been achieved.

One institutional investor told me, “Now we feel it (B shares) are just like the Titanic – a sinking ship. It may not sink if the government wants to save it, but nobody wants to risk waiting to see what happens next.”

An even sadder truth is that today’s B-share market has more domestic investors than foreign. As domestic institutional investors are not allowed to trade B shares, the main direction of trade comes from domestic individual investors. Many foreign investors, in particular some early birds to the unique B shares market have already shifted their focus elsewhere, for example, preparing to buy HSBC’s new shares in Shanghai soon.

Those who quit B shares early may be the real winners. The unexpected B-share tumble this week came after big gains over the past one or two years, especially among real estate companies, which were believed to be a good bet on the appreciation of the yuan.

As the old Chinese saying goes: “Even the finest feast must end at last.” When the feast is over, who will be the last to sing?

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A man reads information on an electronic screen at a brokerage house in Shanghai August 17, 2009. REUTERS/Aly Song

The season of hiring in China

By George Chen
The opinions expressed are the author’s own.

As we enter the last few weeks of 2010, we’re gladdened to hear news of increased hiring in Asia, in particular in China – suggesting a promising business outlook for the coming year. Otherwise, why bother hiring?

On November 24, Barclays Wealth, a unit of British banking giant Barclays, outlined an ambitious expansion plan to double the number of private bankers in Asia and quadruple its assets under management in the region over the next four years. In addition, Barclays is going to set up a booking center in Hong Kong to get even closer to its top-end China clients.

This is not Barclays’ first attempt to grab talent from rivals this year. Its aggressive hiring plan has already raised tensions with Morgan Stanley in the equities, foreign exchange trading and investment banking arenas.

Just a few months ago, Barclays successfully lobbied a number of China-focused M&A bankers in Asia to defect from Morgan Stanley. Such moves, especially for a group of people rather than one or two over a few months, caused quite a buzz in Hong Kong’s financial community at the time. This time, Barclays wants to snag more private banking and asset management professionals. Who should be watching out?

In Asia, smaller banks such as Standard Chartered and DBS Group are furiously expanding, with more wealth likely to be generated in the region powered by the economies of China, India and Indonesia.

Even market leader HSBC is trying hard to expand its private banking team to further consolidate its position in Asia.

Have you seen the hiring ads posted all over Hong Kong? These banks are usually believed to offer less competitive compensation than rivals such as Barclays and Goldman Sachs, which are known for more generous payrolls, but also for longer working hours and higher pressure in the office.

No wonder HSBC just a few weeks ago decided to give senior staff in Asia a huge incentive boost, raising salaries by as much as double. At the end of the day it’s up to you, Mr. or Ms. Talent — what do you really want? More money? Or a more comfortable working environment? Remember the old saying: you cannot have your cake and eat it too.

And how can we forget Citibank, once the world’s largest financial services provider? The U.S. banking giant is now apparently paying more attention to the fast growing rich Chinese customers and bigger Chinese companies. The bank wants to double personnel in China to 10,000 over three years, according to a report by Japan’s business daily Nikkei on November 25.

When the news about Citibank’s hiring plan in China came out, Chinese netizens showed some skepticism. They asked online if Citibank can afford competitive compensation in China similar to what they offer Citi staff in the West. To work for a foreign bank in China is no longer something a young graduate necessarily covets ahead of other opportunities. In terms of payroll, you should not be surprised to see a junior clerk at Bank of China in Shanghai earning roughly 5,000 yuan (750 U.S. dollar) per month, even more than what his peer can get at Standard Chartered in the country’s financial hub.

On the other hand, it’s certainly a good thing to see the financial world recovering. Nobody wants to see another market panic in 2011. Let’s just hope the pace of expansion is reasonable.

Higher salaries means banks attract better people and can offer better quality service, right? Oops! To be honest, I haven’t received a call from my HSBC account manager for almost a year, and I only learned from the online banking system that my account manager has changed twice in the past six months.

Of course, I’m just one of many among its small clients in Hong Kong.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: The HSBC headquarters is reflected in a commercial building in Hong Kong January 18, 2009. REUTERS/Bobby Yip