BRIDGE BUILDER
CLSA chairman Zhenyi Tang pursues many ways to put Chinese capital to work in building a stronger Asia.
When Zhenyi Tang took office as chairman of CLSA Ltd in January 2017, his main task was to oversee the integration of the Hong Kong investment bank and CITIC Securities International (CSI).
The integration followed the acquisition of CLSA in July 2013 from the French bank Credit Agricole in a deal worth US$1.2 billion. The deal was undertaken to give CITIC Securities, China’s largest investment bank, the opportunity to expand its presence abroad as the Chinese economy started to internationalise and its Chinese peers began to play a bigger role in the global financial marketplace.
The China-focused investment bank also decided to merge its Hong Kong i nvestment-banking operations with those of locally based CLSA and by November 2016, all the overseas businesses of CLSA and CSI were combined under one brand.
Mr Tang said that the standard approach in a merger and acquisition would be to fold the operations of the acquired company, in this case CLSA, into those of the acquirer. But his company did the opposite. The reason is that CLSA had been in the region since its founding in 1986 and, by virtue of its Hong Kong base, had connections and reach that the mainland buyer lacked.
“Last year we had, technically, two missions. First of all we had to integrate the two entities into one and by the end of June, we successfully launched the integration,” Mr Tang says during an interview with Asia Focus.
“For CITIC Securities itself, to really become a global company, we really need to adapt ourselves to the global standard and this (merger) is a strategic move.”
Now is a good time to put that strategy to work. Assets under management by financial firms in China are forecast to reach $12 trillion by 2027 due to pension fund inflows, compared with $1.7 trillion at the end of 2017, according to a report from the Shanghai-based financial consultancy Z-Ben.
CITIC Securities dominates the mainland debt capital market, ranking first among Chinese securities firms. It arranged $58.24 billion in bond issues in the first nine months of 2017. On the equity front, the company led all of Asia Pacific in terms of fees in equity and equity-linked deals in the same period of time.
INTERNATIONLISED BANK
“The second mission is really for CLSA to get stronger and to get ready to compete in the international arena,” says Mr Tang. It can do this by growing alongside CITIC Securities, which he considers to be the “most internationalised Chinese bank”.
It was named by International Financing
Review Asia as the Asian Bank of the Year last year following landmark deals in China, spanning A-share placements, convertible bonds and innovative debt issues, along with deals from Sri Lanka to Indonesia.
CITIC Securities was a joint underwriter of a $1.5-billion 10-year sovereign bond for Sri Lanka in May, the first time that Sri Lanka had engaged a Chinese bookrunner. Also part of the seven-firm syndicate were CLSA and ICBC International, the wholly owned subsidiary of the Industrial and Commercial Bank of China.
Prior to joining CITIC Group, Mr Tang served as executive assistant to China’s former vice-minister of finance, Li Yong, from 2006 until he became deputy director-general of the stateowned investment group in 2011. Mr Yong, who also served as first and second secretary to Beijing’s mission to the United Nations from 1985-88 is now the director-general of the UN Industrial Development Organization (Unido).
Given his own vast international exposure and growing curiosity about how the government policies he helped formulate affected the real financial arena, a jump from the public to private sector was a natural step for Mr Tang.
He is accustomed to such changes in the working environment because when he worked for China at the Finance Ministry in Beijing and the World Bank in the United States, the two entities were a world apart.
“There is a huge difference,” he recalls with laughter. “First of all, one is in Washington DC and another one is in Beijing and while one is a domestic policymaker, the other is an international institution.
“They are totally different in those aspects but I was somewhat familiar with it because when I was working for the Ministry of Finance, I was already assigned to its World Bank department.”
The department he was working for in Beijing was like a liaison branch representing the Chinese government’s interests at the World Bank. After six years in China’s capital, he was then assigned to the US capital, a place he knows quite well from his time at the University of Maryland, which is just seven kilometres from the northeastern border of the District of Columbia.
“At the Ministry of Finance I was already working with World Bank projects every day so there was a natural link there, and most of the people in that department will eventually have the opportunity to work at the World Bank so it was my turn,” he says.
“I had four really good years there and I learned a lot from that experience.”
In total, Mr Tang spent 17 years working for the Ministry of Finance including his four years at the World Bank. He originally entered the public service right after graduation from Dongbei University of Finance and Economics, one of the country’s oldest and top-ranked finance, banking and economics universities, in Dalian, Liaoning province. The public university, established in 1952, belongs to the Ministry of Finance and it has a tradition of employing its best students, Mr Tang among them.
“My major at university was international economic cooperation and the reason I chose this field was that when I was in high school, I believed my English was good enough to do some international work for a career, which eventually led me to the World Bank department,” he says in perfect English with a slight hint of a Hong Kong accent.
He points out that working for the Finance Ministry gave him “the best portfolio ever” in China because he learned how it formulates policies. That gave him a good view of the financial system from the top of the country, but it was “only one part of the rule book”, he observes.
How these policies are executed is also important and he was curious to see “the other side of the story” so he decided to join the financial world with the CITIC Group because the way it operates internationally was in line with his own beliefs.
“The company’s international exposure has been phenomenal and during that time (201113), the CITIC Group was planning an initial public offering in Hong Kong, and I believe that it was a good moment to join them,” he says.
“I was working together with Zhang Youjun who is now the head of CITIC Securities for the past five years at the group headquarters.”
BELT AND ROAD LINK
The Belt and Road initiative that China is pursuing to build trade and investment links across Asia and beyond is one programme that CLSA has championed. Mr Tang himself is no stranger to policies and programmes with a regional focus. He was involved in the Asean Plus Three Cooperation and the Chiang Mai Initiative (CMI). The latter emerged in 2000 as a response to the 1997 Asian financial crisis. It is a network of bilateral swap arrangements between Asean, China (including Hong Kong), Japan and South Korea which can draw on up to $240 billion of the member nations’ foreign-exchange reserves as needed.
As for the Belt and Road, Mr Tang is a firm believer in its potential to create wins for all parties involved.
“The whole concept of the Belt and Road is to connect China with the rest of the world and to share the growth of China to the region as a whole. This is not a national strategy for one country, this is a regional or even a global strategy to boost the growth of the entire region and the whole world, starting with Asean,” he says.
“For instance, in Thailand, we see a huge need on the consumption side. Thai people want better lives and better housing, while we have recently invested $25 million in a company that is currently doing submarine cable construction in Cambodia and Myanmar. This shows that we want to be part of Asean because 40-45% of our business comes from here.”
The head of CLSA dismisses the claims of critics who believe the Belt and Road represents a strategy on Beijing’s part to ensure that other countries become indebted to China, in financial and other ways. These claims, he says, have “ignored the basic fact” that the Belt and Road is the right growth policy for the continent while China is not financing 100% of everything.
“We, the Chinese government or [CLSA and CITIC], are not trying to create a debt burden or a debt trap for any country that is engaging with the initiative. ... “We just want to share the growth, open up and work with companies over here.
“If some of the initiatives came in the form of debt, don’t forget that we are an investment bank that is here to facilitate debt-to-equity conversion which is our specialty and this is why CLSA is quite active here.”
He likens CLSA to “a bridge that is heading North and South”. Heading North means that it enjoys good access and channels to Chinese capital in many forms, while Chinese companies have a national interest to link with Asean companies. This is because Asean is a high-growth region with a young population, with infrastructure needs that require a large inflow of capital from China, the World Bank, the Asian Development Bank (ADB) and others.
“We are here to help all these people connect all their resources together. If you want to contact China, you need to have an entity that really understands China and can support and back you up in China,” he says. “Because CLSA is owned by CITIC Securities and CITIC Securities belongs to CITIC Group, we can draw on all our resources within the group to help our clients. … We are a one-stop solution for you.”
The business of CITIC Group spans 52 industries, not all of them limited to finance — McDonald’s restaurants in China, Hong Kong and Macau are among its interests. The group is of course very strong in finance with CITIC Bank, CITIC Securities and CITIC Trust, the largest trust company in China. It is also constantly engaging with Chinese regulators, which is important because regulatory changes will be a key challenge for Chinese banks in 2018 as the government is creating a new super-regulator to oversee a broader group of businesses including insurance.
“For the Chinese companies that are looking to explore offshore business opportunities, you would need somebody to understand you and someone you can trust with a local footprint and CLSA is quite strong here, especially in equity research, and also in the relationships that we have developed with Asean over the last 30 years,” he says.
Filling the gap between Chinese and Southeast Asian companies is something that Mr Tang is determined to pursue. With the Belt and Road and the expected increase in outflows from China, we can expect to see and hear more from Mr Tang and CLSA within the Asean financial space for many years to come.
The whole concept of the Belt and Road is to connect China with the rest of the world and to share the growth of China to the region as a whole. This is not a national strategy for one country, this is a regional or even a global strategy to boost the growth of the entire region and the whole world, starting with Asean