Fraser Howie is scathing about foreigners' blinkered views, particularly those of his financial colleagues who believe they are God's gift to a reforming China.
'The managements of these top firms genuinely believe that China is reforming and say 'we will be in there and China needs us.' So often I hear management talking about, 'China needs to do something.'
'Stop right there. They may need to do it in your world view, but why are they going to do it and why are they going to do it with you? There is no guarantee that they are going to choose you, Bank of America or Goldman Sachs or whoever.'
Howie has some expertise. He works for an investment bank, has lived in Beijing, speaks Putonghua fluently and has written two highly regarded books on China's financial system. 'Look at Morgan Stanley's experience with CICC very early on. (China International Capital Corp was set up in 1995, with the US concern taking 34.3 per cent, China Construction Bank 43.35 per cent and China National Investment and Guaranty Corp the balance.)
'Morgan Stanley got in there thinking this is going to give us the toehold and we are going to be in the dominant position. Yet within a few years, CICC was going out partying with (Morgan Stanley's rival) Goldman Sachs. The irony of course is that Morgan Stanley made an absolute killing financially: they invested US$37 million, got paid that in dividends many times over and then ultimately sold their stake for the best part of a billion dollars.'
He laughs: 'Only in China can you have this storming financial success and end up as a failure. Why do the foreign banks do it? Partly they go with the flow, liquidity in the marketplace, and you get in at pre-IPO prices, so you get great financial returns, so it turns into a financial trade as much as anything. You buy at 10, you sell at 12, so you make two. You make money.'
Making a financial killing is one thing, but it's quite another to be able to make financial waves in China, and Howie doesn't see that happening. 'I see very few cases where the foreign management of the foreign firm has the upper hand in the negotiations. Therefore, if the bank, HSBC or whoever, buys in in a bigger way and goes to the State Council and says, 'We need to bring in drastic reform to make this work,' - and that drastic reform needs to include redundancies, major restructurings, write-offs, write-downs - it's not at all clear to me that that's going to fly.'
