Playing with pieces of China
China’s government has adopted a calculated policy of opening its financial industry to international competition on a piecemeal basis. That has led to foreign investment banks adopting several business strategies to both maximize their profitability and to ensure they are being seen to play their part in helping the mainland authorities with their initiatives to support the development of the domestic capital markets.
Offshore China business, invariably transacted out of Hong Kong, has traditionally entailed listing restructured Chinese state-owned enterprises, normally in Hong Kong and advising on in-bound mergers and acquisitions. As China’s economy has developed, IPO work is beginning to evolve with an increasing number of successful private enterprises now listing overseas, while in-bound M&A advisory assignments are being increasingly supplemented by outbound deals.
Traditionally, the advisory side of the investment banks’ China franchise has been the most profitable. This is beginning to change as principal investment has become a significant element to banks’ China portfolios. Investments have entailed equity stakes in private enterprises that banks hope later to take public, strategic investments in banks and insurance companies, acquisitions of non-performing loan portfolios and real estate projects.