Banking on staying power with China
As the drumbeat of complaints from Western investment bankers about doing deals in China grows louder, the economic outlook worsens and distrust between Wall Street and China Inc rises, one man says he knows what the main problem is: impatience.
Bao Fan started his investment banking career at Morgan Stanley in the early 1990s and also worked for Credit Suisse and a US-listed technology firm.
He has since risen to become the chairman and chief executive of China Renaissance Partners, the country's biggest privately held investment bank.
He founded the bank in 2004 and seven years later, after constantly keeping an eye on the longer term, his persistence finally paid off when he landed a key role in the biggest merger and acquisition in China's internet sector - the US$1 billion union of China's two biggest video sites, Youku and Tudou.
Shanghai-born Bao, who studied business in Norway in his 20s, said his strong belief in long-term relationships with clients was critical to being hired by Youku to advise the company in the high-profile deal.
He said he began making friends among Youku's senior management as early as 2006 when the video site was just one of many small start-ups trying to replicate YouTube on the mainland.
In contrast, he said, some Western investment banks were just in too much of a rush in China these days.
'This is what I learned during my days at Morgan Stanley: pay close attention to, and focus on, your relationship with clients and make the relationship long-term,' Bao said.
'But when you look around, there are not many Western investment banks that still focus on long-term client relationships when they do business in China.
'Many of them are just pushing to sell their products and are purely driven by transactions.'
Bao's comments are echoed by Chinese enterprises that are keen to expand outside China but are struggling to find reliable partners in the global investment banking industry, a sector so far denominated by Western firms like Goldman Sachs and JPMorgan Chase.
For example, in 2009, major state-owned airlines made multibillion US-dollar losses after buying fuel derivatives from overseas banks, including Goldman Sachs and other well-established names.
One senior Chinese industry regulator described the deals as containing 'fraudulent characteristics' and, since then, the distrust between China Inc and Western banks has deepened.
Industry insiders say part of the reason for Western banks' increasingly aggressive efforts to sell products, including some that may not be a good fit for Chinese companies, is that many of them have been under greater pressure to make profits since the 2008 global financial crisis.
The economic turmoil, a stuttering US economic recovery and the worsening debt crisis in Europe, is forcing more global banks to look to Asia, particularly China - for quick profits even at the cost of selling products that their clients might regret buying.
'After the 2008 financial crisis, we have seen many Chinese corporates becoming increasingly dissatisfied with the services offered by those international investment banks. Many of them tell us they sometimes feel helpless,' Bao said. 'They want to find investment banks that can stand by Chinese corporates and understand their values and share their perspective.
'They want their investment banks to be reliable, and I think that spells out a growth opportunity for a home-grown firm like China Renaissance.'
Bao said entrepreneur friends finally pushed him to launch Beijing-headquartered China Renaissance in 2004. As more and more friends asked him informally for advice on mergers and acquisitions, particularly in his specialist areas of the internet and technology, he decided to put his expertise to work and build a business on it.
Bao believes his firm can grow as the businesses of those contacts prosper, rather than by mindlessly pushing clients towards a deal just to generate advisory fees.
He said he had watched mainland tech companies grow from relative minnows to leaders in their sector in just a few short years. Tencent, which provides the popular QQ messaging service in China, is just one prominent example, becoming one of the world's biggest internet companies in less than a decade.
Bao said his firm spent about five years following the development of Youku.
'During that time, to be honest, we didn't do much business with youku.com but we wanted to keep up a long-term relationship with Youku because we could see the company's potential. Finally, our patience paid off,' he said.
Bao said when the financial services industry in China was young and underdeveloped in the 1990s, many Chinese companies preferred to choose foreign investment banks as partners due to what he called the 'famous doctor' effect. In recent years, that attitude has changed.
'You know, Chinese people like to visit famous doctors. True, those big-name doctors are excellent, but can they give you the 100 per cent focus that you demand for your particular situation?' he said.
'If not, then perhaps you'd be better off seeing someone who isn't a celebrity doctor but can give you all of his or her attention.'
After the Youku-Tudou deal last year, Bao felt more confident about driving China Renaissance into the next era - to turn the firm into a full-service investment bank to handle Chinese clients' increasing demands, including those of firms that have already listed in the US and may want to come back to Hong Kong or Shanghai for a secondary listing in the next three years.
China Renaissance has opened a new office in Hong Kong to serve as the firm's first offshore platform for international business.
Bao said he was grateful for what he learned at Morgan Stanley, which he said had changed since he worked there. 'Many international investment banks these days are very much transaction-driven, not client relationship-driven, and they want to do one big deal with a client and then move on to look for the next,' he said.
'I think this is very short-sighted.
'This is not what a traditional investment banking business should be like and that's why you see those big banks fail. I want my firm to go back to basics, to grow with our clients and to focus more on long-term relationships.'