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Speaker 2: The oldest investment bank in China is a shadow of
Speaker 2: its former self. The Beijing based China International Capital Corporation
Speaker 2: or CICC, used to compete for business and talent with
Speaker 2: some of the biggest firms on Wall Street. The bank
Speaker 2: was designed to raise the profile of China and its
Speaker 2: state run companies and to attract more foreign investment. It
Speaker 2: was a symbol of the communist country's embrace of capitalism
Speaker 2: under former Chinese President Jong Zimen. But Kathy Chan, who
Speaker 2: covers Asia's investment banks for Bloomberg, says cicc's priorities have
Speaker 2: changed under new leadership, and so have its ambitions.
Speaker 1: I think that internal culture has shifted from being aggressive
Speaker 1: and driven to largely complacent.
Speaker 2: Kathy says. The firm, which once in embraced the West,
Speaker 2: is now turning inward, deepening its ties to the Chinese
Speaker 2: Communist Party.
Speaker 1: It was revealed that thirty percent of the staff become
Speaker 1: COMMUNSTPODIY members. Having thirty percent is pretty high number, quite
Speaker 1: an astonishing figure.
Speaker 2: One of Kathy's sources told her about a recent meeting
Speaker 2: of cicc senior staff. He said they unfurled a Chinese
Speaker 2: flag and a banner with slogans by President Hixiping, the
Speaker 2: current leader of the Chinese Communist Party, and something else
Speaker 2: stood out.
Speaker 1: To Kathy's source, he was astonished to see a lot
Speaker 1: of people wearing the CIPPE badges. Basically, it features a
Speaker 1: rap background with a golden yellow hammer and sickle display
Speaker 1: on the left. It symbolized the party's roots and social sideas.
Speaker 2: It's not something you would have seen during the bank's
Speaker 2: heyday when there were fewer party members among the cicc's ranks,
Speaker 2: and they wouldn't have advertised it. And what's happening at
Speaker 2: ci ICC could raise eyebrows among global investors who are
Speaker 2: already anxious about China's opaqueness and find the business environment
Speaker 2: difficult to navigate it.
Speaker 1: Basically, it tells you a liberal, restlized companies or entity
Speaker 1: in China will not go well because they will not
Speaker 1: be very much welcomed. What China wants is a company
Speaker 1: or entity that only serve the inches of the party.
Speaker 2: This is the Big Take Asia from Bloomberg News. I'm
Speaker 2: David Gerra. Every week we take you inside some of
Speaker 2: the world's biggest and most powerful economies and the markets
Speaker 2: tycoons and businesses that drive this ever shifting region. On
Speaker 2: today's episode, the transformation of China's oldest investment bank What
Speaker 2: that means for the future of finance in China. The
Speaker 2: story of the China International Capital Corporation begins almost thirty
Speaker 2: years ago.
Speaker 1: C SEC was created in nineteen ninety five. It was
Speaker 1: a job venture between Morgan Steane and China Construction Bank
Speaker 1: and back by other investors in Hong Kong and China.
Speaker 2: It was a new arrangement and at that time Morgan
Speaker 2: Stanley's president called it a quote landmark in China's move
Speaker 2: toward becoming a full participant in and the beneficiary of
Speaker 2: the international capital markets. The goal, Bloomberg'skathy Chan says, was
Speaker 2: to create a firm that would help Chinese companies raise
Speaker 2: money from overseas investors.
Speaker 1: The idea is really to help all these stay owned
Speaker 1: companies in China restructure, reform and to introduce foreign investors
Speaker 1: invest into these companies.
Speaker 2: Of course, to do that successfully, CICC needed to hire
Speaker 2: top talent, and the bank was on the lookout for
Speaker 2: a specific type.
Speaker 1: They actually didn't want to attract bankers from Goldman and more.
Speaker 1: In standy they only want bankers who have really good
Speaker 1: knowledge based in China about China, so they were more
Speaker 1: focusing on the Chinese who studied abroad or has the
Speaker 1: westernized minds.
Speaker 2: Kathy says. These people have a nickname.
Speaker 1: People who studies abroad and came back. They are called
Speaker 1: sea turtles, basically having the westernized knowledge and skills to
Speaker 1: run the firm with pretty westernized thinking.
Speaker 2: CICC was basically a startup without the name recognition of
Speaker 2: its more established peers, but as the company grew, it
Speaker 2: modeled itself after the big western banks that came before
Speaker 2: it in New York and London in the early days.
Speaker 1: Because of the backers who have Moman Standy and also
Speaker 1: GIC behind. Definitely it was a pretty liberalized, the resonized
Speaker 1: way of managing things.
Speaker 2: That seemed to work. CICC was competitive. It became a
Speaker 2: trusted advisor to Chinese companies and introduced them to investors
Speaker 2: who saw opportunity in China, and.
Speaker 1: So c SCS has been making really good profit because
Speaker 1: of these valuable advice given to the Chinese companies, and
Speaker 1: they are very competitive among the global banks in China
Speaker 1: because they are the only one who knows the East
Speaker 1: and the West, and competitive in the sense that they
Speaker 1: are paying the bankers really well, sometimes better than the
Speaker 1: people the bankers get Morganistenic government is getting.
Speaker 2: But after fifteen years, Morgan Stanley decided to pull out
Speaker 2: of the joint venture. It partnered with another local firm,
Speaker 2: China Fortune Securities company that Morgan Stanley hoped would give
Speaker 2: it more influence over management and securities. What happened when
Speaker 2: Morgan Stanley pulled out of this arrangement hasn't.
Speaker 1: Changed much except to become more verse. The sec a
Speaker 1: profit driven company, very aggressive, even more independent from Mogenstanding,
Speaker 1: meaning they can pursue their own goos, pursue their clients strategies.
Speaker 1: I mean, they're very very China focus, and they don't
Speaker 1: have the restrictions that facing Morgan Standing or government sets.
Speaker 1: So after Monstly left, SISS to become even more prosperous.
Speaker 2: But then something changed. A few years ago, China's president
Speaker 2: started to signal a shift in the country's economic priorities,
Speaker 2: and he summed it up in a political slogan, Common Prosperity.
Speaker 1: Common Prosperity Drive is introduced by Presidencity in Pain in
Speaker 1: twenty twenty one, The aim of that is to create
Speaker 1: an environment with a relatively eco distribution of wealth.
Speaker 2: There is this inherent tension between communism and capitalism. They
Speaker 2: don't go hand in hand, and practically speaking, finding some
Speaker 2: kind of compromise between the two was not an easy
Speaker 2: sell to investment bankers. For those sea turtles, the water
Speaker 2: at CICC wasn't as warm as it used to be.
Speaker 1: Being westernized meaning you are not serving the country well,
Speaker 1: meaning your priority is not the country in slot party building.
Speaker 1: Your pority is your own wealth. You're amerging your personal life.
Speaker 1: That's not the ethos of the Communist Party. So in
Speaker 1: a way that c S is a bankers if you
Speaker 1: are more of the on the western side, you're definitely
Speaker 1: feeling very awkward in the firm.
Speaker 2: She's Common Prosperity Drive had a profound impact on the
Speaker 2: bank's performance, but just how did it go from being
Speaker 2: a premier investment bank to fighting for its future? That's
Speaker 2: after the BREAKA resident Xi Ximping, who's also the General
Speaker 2: Secretary of the Chinese Communist Party, rolled out his Common
Speaker 2: Prosperity Drive in twenty twenty one. Cheni Mi.
Speaker 1: For then shidcly Minshenda Shiji Shintinda.
Speaker 2: It was a directive intended to share a slower growing
Speaker 2: economy more equitably, and it had an outsized impact on CICC,
Speaker 2: China's oldest investment bank limit a slump in deal making.
Speaker 2: Bankers at SICC have been seeing their bonuses slashed for
Speaker 2: the past three years. Some senior bankers saw their total
Speaker 2: compensation cut by more than forty percent last year, and
Speaker 2: this April, CICC demoted some of its senior bankers and
Speaker 2: cut their base salaries even further.
Speaker 1: It actually happened quite slowly. On twenty Street is really
Speaker 1: the year that you've seen a lot of changes because
Speaker 1: especially after this new chairman came in from a state
Speaker 1: owned background, Galla SISK and once this new guy came in,
Speaker 1: the whole firm really changed the cultures everything. People when
Speaker 1: they see the clients, if it's as of your clients,
Speaker 1: stay on clients, they were just displayed the five star flags,
Speaker 1: you know, displaying presidency slogan, how to build a party,
Speaker 1: build a country, that sort of thing. It happened not
Speaker 1: until late last year or earlier this year.
Speaker 2: Can you introduce us to the chairman, the man running
Speaker 2: this company, the chairman it's.
Speaker 1: Called and he came on board in November twenty three.
Speaker 1: After he came on board, the whole firm is being
Speaker 1: kind of run by him, characterized by a lot of
Speaker 1: slogan readings and basically upholding the values of party. And
Speaker 1: he did that pretty much in every major meetings before
Speaker 1: the actual meeting starts.
Speaker 2: Kathy, we've talked about the talent that this bank could
Speaker 2: attract and compensation getting cut by by forty percent, What
Speaker 2: effects that had on the ability to a train talent,
Speaker 2: to retain talent, and also just a morale within this bank.
Speaker 1: Definitely, they are not able to retain any talent or
Speaker 1: a tract talent, and that's why you see the morale
Speaker 1: has been bad. A lot of people I've talked to,
Speaker 1: they're basically lying flat trying to keep their job unless
Speaker 1: they find a new one. So everyone's pretty much looking
Speaker 1: for jobs elsewhere.
Speaker 2: We reached out to CICC, but it's spokeswomen declined to comment.
Speaker 2: For those who have stayed put, almost everything about the
Speaker 2: job that could change has changed, Kathy says.
Speaker 1: Bankers who are visiting SOE s stay owned companies, they
Speaker 1: will have to display the flag or the store guans
Speaker 1: to kind of make the client feels like they are
Speaker 1: on the same side. That is symbolizing unity and alignment
Speaker 1: with the party and lower down operationally, Chairman Chen is
Speaker 1: basically telling people you have to work hard for the party.
Speaker 1: We are not here to promote our self interest. So
Speaker 1: because of that change, bankers are generally thinking the hope
Speaker 1: of CSC is come and people are no longer working
Speaker 1: hard or the investment banking floors is c SC in
Speaker 1: China before six pm is really much empty. As I
Speaker 1: was told, people no longer walk long hours. They would
Speaker 1: just be there and then left early.
Speaker 2: This is just an ethos of being a member of
Speaker 2: the party. You wouldn't pull an all night, or you
Speaker 2: wouldn't stay late, you wouldn't keep you wouldn't keep working.
Speaker 1: I mean the thing about if you are no longer
Speaker 1: working too for your own interest, why would you bother
Speaker 1: kind of working so hard?
Speaker 2: Kathy, you've described how there are now so many people
Speaker 2: who work at this bank who are members of the
Speaker 2: party display signs of their membership. Is it the expectation
Speaker 2: now if you work at this bank, that you do
Speaker 2: join the party, And if so, what are the potential
Speaker 2: benefits of doing that to those bankers who work at CICC.
Speaker 1: Being a party member is getting more important in this
Speaker 1: content because if you are performing and you are a
Speaker 1: party member, that means the chance of you getting promoted
Speaker 1: is higher than if you're not.
Speaker 2: I'd love for you to situate this in the economic
Speaker 2: climate we're in right now, the business climate that we're in.
Speaker 2: This is a bank whose bread and butter is IPOs
Speaker 2: is taking companies public, and this has not been a
Speaker 2: great time for that. NOI is it looking like that's
Speaker 2: going to improve anytime soon.
Speaker 1: That's right, especially for Chinese companies selling stocks overseas. People
Speaker 1: generally don't believe that there would be a major bounds
Speaker 1: back at least this year. Although we have see more deals,
Speaker 1: we will never be able to go back to the
Speaker 1: old days. That's general thinking.
Speaker 2: The grim mood is reflected in cicc's stock price, which
Speaker 2: is almost half what it was two years ago. Profits
Speaker 2: and revenue have declined, and the bank has been losing
Speaker 2: market share. You almost have to squint to see the
Speaker 2: original CICC at this point, and Kathy says the firm's
Speaker 2: future looks very, very different.
Speaker 1: We have a professor in Hong Kong basically thinking CSEC
Speaker 1: wild disappear. The future of c SC would be very
Speaker 1: much the same as the future of other state owned
Speaker 1: brokeages in China. There to serve the country. The international clients'
Speaker 1: investors will not be their major focused clientele.
Speaker 2: All of this has signaled the end of what was
Speaker 2: an ambitious experiment back in nineteen ninety five when CICC
Speaker 2: was started.
Speaker 1: The bands itself not disappear, but the culture of the band,
Speaker 1: the original access to the band, will disappear eventually. That
Speaker 1: means for the global bands, I mean they will see
Speaker 1: a disappearance of a strong competitor that they used to
Speaker 1: face when it comes to China deals.
Speaker 2: For global investors who are watching cicc's cultural and ideological transformation,
Speaker 2: Kathy says, there's a lesson here.
Speaker 1: I think China doesn't really want to be seen as
Speaker 1: converting the foreign firms into a CCP entity, and that
Speaker 1: propervier will scare a lot of investors. Not yet, but
Speaker 1: if you are based in China, if you have to
Speaker 1: deal with the local governments and regulators more for business purposes,
Speaker 1: you Papyria want to be seen as more China like
Speaker 1: rather than very Westernized or very you as like.
Speaker 2: This is the big take Asia from Bloomberg News. I'm
Speaker 2: David Gerre. This episode was produced by Young, Young, Naomi,
Speaker 2: Jessica Beec and Ariana Tapia. It was edited by Aaron
Speaker 2: Edwards and Jonas Bergmann. It was mixed by Rishi Pajacol.
Speaker 2: It was fact checked by Naomi and Young. Our senior
Speaker 2: producers are Naomi Shavin and Kim Gittleson. We get editorial
Speaker 2: direction from Elizabeth Ponso. Nicole Beemster Boor is our executive producer.
Speaker 2: Sage Bauman is Bloomberg's head of podcasts. Thanks for listening.
Speaker 2: Please follow and review The Big Take wherever you listen
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