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Focus> Leaders> Content
Friday, October 12, 2018, 11:11
A historic mission below the lion rock
By Sun Feier
Friday, October 12, 2018, 11:11 By Sun Feier

ICBC International has played a key role in cementing economic ties between the mainland and Hong Kong. Executive Cong Lin tells Sun Feier the group has gone through four major waves of change, mirroring the impact of the nation’s landmark reform and opening-up on the SAR.

Cong Lin, chairman of Industrial and Commercial Bank of China International. (PHOTO BY PARKER ZHENG / CHINA DAILY)

No place is more apparent than Hong Kong — a city of integration and embrace at the nexus of the capital market and the Chinese mainland’s economic reform.

It started some 40 years ago as Hong Kong first introduced “middlemen” linking the mainland with the rest of world in its historic mission. But, the city’s four-decade-long financial history isn’t just about money, exchange or distributing resources. It’s about human action and collaboration.

Cong Lin, chairman of Industrial and Commercial Bank of China International — the investment banking unit of the world’s biggest bank by market value — recalls every turning point in the past 40 years during which Hong Kong unhesitantly inched forward as Asia’s financial hub.

Window companies, SOE listings, banking sector listings and HKEX reform have been the four major waves of change in Hong Kong’s capital market

Cong Lin, chairman of Industrial and Commercial Bank of China International

“Actually, Hong Kong’s status as a world-class capital market began to exude in the late 70s of the last century,” Cong tells China Daily. “China’s reform and opening-up had boosted the city to gain its international position, while before that its economy was mostly driven by local companies.”

He thought of a “window company” in making the first foray. In June 1979, the first central enterprise-owned window company — China Overseas Holdings — was launched. That was promptly extended to local governments’ pursuit of greater foreign and Hong Kong capital to the mainland, with Beijing Holdings, Guangdong Enterprises (Holdings) and Fujian Enterprise (Holdings) poised to set foot in Hong Kong in lockstep.

After that, more and more central enterprises and local governments were rushing to Hong Kong to set up enterprises, sparking a “head south” wave.

The launch of H-shares in the city marked the second turning point, says Cong. In 1993, Tsingtao Beer — maker of one of the mainland’s most sought-after beers — completed its initial public offering in the Hong Kong stock market, heralding a new era for Chinese companies, especially State-owned enterprises seeking to go public outside the mainland.

When it became clear that a Hong Kong flotation would mean a pool of benefits in terms of SOEs’ capital structure, company reformation and enterprise governance, everyone came.

Today, the market capitalization of mainland-related listed companies accounts for 37.42 percent of the entire market value. As of late August this year, it dwarfed the merely 4.78-percent capitalization registered 25 years ago, according to data from Hong Kong Exchange and Clearing — the city’s bourse operator.

China Construction Bank’s listing in Hong Kong in 2005, according to Cong, spurred the third wave, dubbed the “Chinese banking sector listings” — from just four major Chinese commercial banks’ attempts since 2005, including Bank of China, Industrial and Commercial Bank of China and Agricultural Bank of China, to Postal Savings Bank of China’s flotation in 2016.

“We played a part in PSBC’s IPO here as well, and the success of Chinese banks’ listings enriched the investing opportunities for the general public,” says Cong.

Since early this year, HKEX’s new listing policies, which include opening up for dual-share class firms and pre-profit biotech enterprises, have injected new life into the city’s much-heralded financial transformation. This is the latest wave.

“Window companies, SOE listings, banking sector listings and HKEX reform have been the four major waves of change in Hong Kong’s capital market. It demonstrates the impact of Chinese economic reform on the city,” Cong explains.

Riding on China’s further opening-up, Cong’s company, formerly known as Industrial and Commercial International Ltd, was renamed ICBC International in 2008 in a bid to cater for the parent company’s strategic transformation. Currently, it provides not only traditional investment banking services, such as sponsorship and underwriting, bonds underwriting, merger and acquisitions, restructuring advisory, futures or derivatives, and debt financing, but also innovative services like direct investment and asset management.

Cong Lin, chairman of ICBC International, says China’s opening-up has helped Hong Kong boost its global status. (PHOTO BY PARKER ZHENG / CHINA DAILY)

Off the beaten track

As an investment bank off the beaten track, ICBC International has been one of the pioneers in innovative services. It was one of the early backers of bike sharing provider Mobike, then brought its great amount of cash, generated by every end-user’s pre-using deposit, into the management of ICBC International’s parent company ICBC.

China Renaissance — a boutique investment bank focusing on the new economy — rang the floor bell at the Hong Kong stock exchange and got its offering in September. That was jointly sponsored by ICBC International in conjunction with their collaboration in a special fund covering corporate finance, asset management, capital markets and wealth management last year.

Cong called it “killing three birds with one stone”, given his prescient observation in a mixture of commercial banking, investment banking business and corporate revenue.

Pressure on whether investment banks should stick to their traditional asset-light strategy to control risks mounted in the Hong Kong market but, to Cong, no innovation would mean near death, especially with the market being so volatile so far this year, buffeted by geopolitical uncertainties.

As a result, after Cong took charge, he introduced two more focus areas — direct investment and asset management. To meet the changes in the mainland’s new economy landscape, ICBC International, as the sole overseas investment platform of ICBC, tapped into a variety of sectors like consumption, technology and healthcare, and betted on enterprises that have been in the public eye, such as Tencent-backed fintech firm WeShare, artificial intelligence startup YITU Technology, Chinese online used car sales platform Guazi.com and JD Logistics.

Currently, ICBC International manages up to HK$200 billion worth of assets, Cong reveals.

Bearing in mind that new economy startups are always below the entry requirements for most commercial loans, the company has decided to participate in their clients’ every life-cycle — from direct investment to subsequent mergers and acquisitions, as well as IPOs.

But, the question of how Chinese-funded banks draw their blueprint in the investment banking section still puzzles Cong, his team and peer companies.

“We’re still in the early stage of the investment banking sector,” says Cong. Compared with the world’s “bulge bracket” investment banks, such as Goldman Sachs, JP Morgan Chase or Morgan Stanley, Chinese-backed peers still lag far behind in institutional structure, business model and market logic, given foreign investment banks already have the experience for more than a century, he explains.

Claiming the crown

The situation has made Chinese investment banks struggle to adapt. Foreign investment banks still hold overpowering control of derivatives which had somewhat triggered the 2008 financial crisis, as well as product pricing of commodities, gold, foreign exchange and futures. This worries Cong.

However, he refuses to copy and paste. “We need to pave our unique way partly because we’re under the structure of ICBC, a Chinese commercial bank.”

Since its launch a decade ago, ICBC International has claimed its crown in the Hong Kong capital market, ranking third in terms of mainland and Hong Kong investment banking fees so far this year, including equity, debt, mergers and acquisitions and loans, and surpassing major foreign peers.

As a global investment bank, it has attracted overseas clients. It was involved in Brazilian State-owned Petroleo Brasileiro’s US$70-billion share sale — the world’s largest in 2010 — as a joint bookrunner, and in insurer AIA Group’s US$20.5-billion IPO — Hong Kong’s biggest share sale the same year — as an underwriter. It also marked the first time a Chinese investment bank had participated in a global offering.

The revenue coming from foreign clients currently accounts for about 20 percent of ICBC International’s total income, according to Cong.

Taking the helm at a wholly-owned subsidiary of retail bank ICBC, how commercial banks could, therefore, build a sustainable investment banking arm is another question for Cong.

“The path of the commercial banking structure and investment banking activities carried out under one roof seems much harder, based on global experience,” he says.

They are quite different for commercial and investment banks in terms of corporate culture and risk preference. “We’re situated in our ‘Middle Way’, and figuring out a way for a Chinese commercial bank to develop its investment banking business step by step is a historic mission in our generation,” Cong says.

Long seen as a key to accomplishing those historic missions, ICBC International’s corporate culture — as a “warm investment bank” — enables the Hong Kong-based financial institution to stand out in the city’s central business district, with its huge cluster of financial enterprises crammed into a forest of skyscrapers.

“Everyone walks quickly, and every restaurant is full of people talking business,” Cong says.

Therefore, the company has organized various lectures on the stage below the lion rock, covering every aspect of the community, such as introducing Beijing’s National Palace Museum or the trade relationship between China and the United States, with “less figures in mind”.

As this year marks the 10th anniversary of ICBC International’s rebranding, big billboards featuring violin musicians, statuary craftsmen and calligraphers have gone up on the walls of Hong Kong International Airport with the slogan “A Journey of Dedication and Innovation”. That shows ICBC International’s new face 10 years on in the pursuit of mastery and brilliance.

Contact the writer at joycesun@chinadailyhk.com


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