This week I’m going to try to give a high level view, based on my personal experiences, on what the investment banking industry is like in China. There are obviously similarities to the U.S., but also a number of key differences as well.
There are basically 2 distinct flavors of investment banks in China: the huge guys, and everybody else.
The huge guys group does include all the bulge brackets we’ve all come to love, but they really don’t have much of a share in the market here. China is dominated by the domestic banks and securities firms.
Everybody else is, well, everybody else. Some of the bigger international “middle market” firms are supposedly here with an office, but my they aren’t doing much beyond maybe a cross-border M&A deal here and there. There are also small international-run “boutiques” that also focus on cross-border M&A.
In terms of new issuances, China is all equity. There technically is a bond market, but it’s quite small and underwriting is dominated by the mainland houses. Developing an active bond market is one of the goals of the CSRC (the Chinese securities regulator), but it’s not here yet. Bloomberg had a good article the other day about the current situation of the bond market in China.
The mainland exchanges, located in Shanghai and Shenzhen, list only the largest private and state-owned companies. Foreign companies cannot list on Chinese exchanges, and outside of a program called QFII, foreign investors cannot buy shares on mainland exchanges either. This leaves a few options for smaller Chinese companies to raise capital: list in Hong Kong, or try to go public overseas.
Attempting to go public overseas is often more appealing to the average mainland business owner then trying to do so in Hong Kong. Hong Kong investors have a bit of a natural suspicion toward anything Chinese, so to fill the gap, a number of “boutique investment banks” popped up in the mainland to facilitate overseas listing for small Chinese companies, with dubious results.
China is in theory undertaking reforms to allow more companies to list on its exchanges, and to allow more foreign investment in yuan-denominated debt and equity. Whether or not this actually happens is a different story. I think the biggest hurdle for reform in the Chinese financial markets is the widespread fraud that permeates every aspect of the industry here, from insider trading to accounting fraud.
My question is: Even if you could, would you invest in a company listed on a Chinese exchange?
I would not invest in companies listed on Chinese exchanges until they straighten out their accounting issue. However, i wouldn't mind flipping Chinese equities if the opportunity arose.
As of now I probably would not want to invest, or if then only a rather small amount out of my allocation for risky investments. All the accounting fraud is really a huge turnoff , and with their plans to exclude foreigners from working at those acct. firms I doubt its gonna get any better, plus u never know when the government is gonna screw with u
I am doing an internship for an institutional QFII fund in shanghai, and from what I saw, the fraud part is very true for Chinese banks (not really that much at oversea corporates). People don't do M&A a lot here; they just mainly focus on IPO since they can raise a large amount of capital in a relatively short period of time by, you know, making some "minor changes" on there balance sheet. The same does local PE.
Insider transaction are also common here. However, if you live in China then you may probably like what's going on here, simply because you put money into your pocket. 2 months ago the government claimed to have more QFII allocation for oversea companies, so the market is going to be more and more regulated in some ways. But it's true that you can only do HFs in HK.
Questions to the OP :
1) As most of the large SOEs have completed their public offerings in the past, will the HK market slow down in the future??I think the HK market was a major beneficiary amid the Chinese companies' IPO boom. But that is all coming to and end. Without IPOs, what else are their edges???
2) Do you think HK's offshore RMB market will grow exponentially in the future??How would you compare it between the ascent of the Eurodollare market back in the 60s??
Last year I interned at one of said boutiques for 8 months (study abroad and subsequent summer internship - fucking loved it by the way) and I know there are a lot of US firms; the firms that you have never heard of are actually massive corporations, that are pursuing a HK listing (instead of NYSE etc.) while initiating operations on the Mainland concurrently. So yes, maybe Chinese-owned IPOs will slow somewhat, but I don't see any significant decline in activity in the near future.
Disclosure:I just graduated and am unemployed, so take my comments with a can of Morton's salt.
1) Good question. I think Hong Kong's biggest advantage is its strong legal system. The legal system in China is constructed solely to uphold the rule of the Communist Party, and you will never get a fair judgment in a Chinese court if you are a foreigner.
I also think central Asian countries present an opportunity. Within the past two years, the HKSE established a listing framework for mining companies, something the Australian and Toronto exchanges already have.
2) Take this with a grain of salt, since I'm not really up on the currency markets. I know London has stated they want to become a center for offshore RMB trading. As the RMB becomes more freely convertible, obviously the market will grow in all the currency hubs, but I think growth will be biggest in HK since its closest to China and all the current trading is being done here anyway.
I'm interning at one of China's biggest VC firm (its a SOE) and i must say some of the projections made by the private companies I've looked at is ridiculous, for example: year 1 gross profit 20 mill year 4 gross profit 400 mill
A lot of IPOs made in China are also based on "relations", in a meeting i had my team's investment manager was basically telling us how an private firm reaches IPO and there's a lot of "Guy A knows guy B, Guy B knows Guy C who works for the CSRC, I also happen to know guy C so this venture should pass no problem"
Some people say you don't do as much modeling in china.. which can be true. But for the firm I worked for, I had to do extra modeling to TRIPLE check the projections for companies using several modeling approaches to be extra sure the targets were reasonable...
There is also the issue of purchasing positive press pre-IPO or paying to have negative press silenced, as documented by Caixin: http://english.caixin.com/2012-06-07/100398287.html
"Dishonesty in China's investment world likewise plays into some company decisions to try building investor trust through news distortion by, for example, paying financial newspapers to publish glowing reports about an IPO plan. Others pay Internet search engines to scrub archives, or hire public relations or law firms to help them work with media outlets to sanitize company history."
I've been in China a bit less than three years now. Drank the kool-aid for a while, but have since turned major skeptic about pretty much everything that transpires.
When I was working for a PE in Shanghai, we spoke to some companies who were listed on or considering a listing on the Shenzhen GEM exchange, which is a second-tier exchange for smaller companies in China. Valuations on the GEM exchange tend to be huge, although I believe liquidity is often a problem. Still, it is worth pointing out that there are domestic listing options for smaller enterprises.
[Removed as I accidentally posted twice]
Also important to note that IPO'ing in US as means to raise capital is probably indefinitely suspended for Chinese companies until some agreement is reached between the SEC, Chinese government and the Chinese arms of Big 4 auditors.
I-Banking in China & CICC (Originally Posted: 03/02/2010)
anyone here knows what the culture's like in chinese firms? or CICC in particular if anyone has experience with them.
i'm most likely doing a summer internship there and i'll be doing my mba afterwards in the fall. so i'd also like to know what are the exit ops there - both within China and globally.
i have a weak banking background, having worked mostly in other areas of finance, but i'm looking to switch careers post mba, hence why i'm doing this now, so a few noob questions:
what are typical work assignments i can expect? skills other than excel? exit ops from CICC?
also what's a better/more prestigious/higher paying role to take - ibanking or M&A? i MIGHT get to pick between the 2...
I dont have the answers youre looking for, but I have a question for you. How did you apply to CICC??
thru contacts and networking. that's about the only realistic way imo.
I had an interview with them but it became pretty clear to me that the culture was not for me. I'm Chinese by birth but have spent most of my life in the US, therefore, their style was just a very difficult fit for me (and it was pretty obvious that I was not going to succeed). I don't know how to word it other than to just say that it was WAY too Chinese for me.
They have a very strong reputation and get a big chunk of the advisory business in China, so if you like the people, I'm sure it will be a great stamp to have for doing banking in China. What office are you going to? Beijing or Shanghai?
that doesn't sound too promising for me, since i have pretty much the same background as you. however, that being said, i've worked in china before for a yr, so i'll see maybe if i can try to cope with it.
95% chance i'll be in the beijing office. not sure about the exact role yet, but chances are it'll be in their core ibanking/m&a business.
from your interviews, do you have any idea how many employees they have? or the size of their offices? i've heard their compensation is comparable to north american BB's...what about the hours? if you have any other insights into their business, please share. thanks.
I didn't visit the Beijing office, only the Shanghai office in Pudong. From what I saw, it was pretty large, I would estimate at least 1000-2000 staff minimum combined on the floors I visited. Not sure the breakdown between FO/BO people but considering CICC is almost exclusively advisory, that means their IBD group is not small.
Hours are long; didn't ask specifics but the people I spoke with certainly alluded to working weekends and late nights. The thing that bothered me the most was that it seemed big on hierarchy (even compared with US banks) and very rigid with respect to insulating senior bankers/clients from direct contact from junior bankers. e.g, this would NOT be the place where if the analyst had a question, he/she would feel free to ask the MD directly.
The only comment I can make on compensation is that while their compensation at senior levels are indeed rumored to be as good or better than some western BB's, at the junior levels, it will be MUCH less. Numbers that were being thrown around for Associates (not sure of year) were around 700K RMB a year all in. That translates into about $100K/yr. Not sure on Analysts.
I worked there as a summer analyst in the Asset Management division. Culture is pretty much what everyone else had said i.e. it's very Chinese. Pay for interns was astronomically shit (one of the interns i worked with there was a PKU Grad student and he was getting paid 2K RMB a month with minimal meal reimbursement). I heard the analyst level pays in investment banking were pretty mediocre for local hires but better than AM albeit the hours are much worse. I would not compare their analyst level compensation with North American BBs. Perks include meal reimbursements and gym membership at the Kerry Center which is next to the China World office. 99% of business is conducted in Chinese. The only time I ever used English was perhaps for the occasional email or to read equity research reports from other foreign banks.
PM me if you have any other questions.
pm sent. thanks for your post zheff.
anyone else with experiences with CICC - please feel free to weigh into the discussion.
Very interested in this. Are you all guys Chinese? I mean native Chinese speakers. I am living in Beijing and would like to intern there, but my chinese is not even close to native level. Should I forget about it?
when you guys say networking, does that imply you guys knew someone already at CICC who vouched for your candidacy or is other looser type of affiliation sufficient?
I believe it is the time to begin a new thread for Chinese banking lol. Have seen a lot of threads recently. Well you will not be working on a lot of pitch books and modeling as you may find regularly in US. Currently the IPO market in China is really inactive so basically BBs are underwriting corporate and enterprise bonds. I imagine the majority of your work will be focusing on the private placement and bond issuance. M&A also has small presence there. pm me if you want more details. I will also be starting my SA gig in Beijing. I am pretty sure you will be placed in Guomao, which should be the main office of CICC.
Just got a phone call this sunday afternoon and asked for an interview at their HK office tmr... It will be 1 phone interview (guess maybe the person is out of town) and then 3 back-to-back interviews.
A few basic questions: 1. do their interview more technical or behavioral? 2. anywhere we can find recent deals done by CICC? 3. according to CICC's intro, their HK IBD division is structured in a way that an analyst may engage in M&A, IPO, ECM, DCM jobs. In fact, Im a bit confused with this...? any idea? 4. what kind of deals CICC is working on the most?
Your inputs are very much appreciated!!
Banking in China - language barrier? (Originally Posted: 02/02/2010)
Few questions:
1) Is it realistic to consider doing banking in China (Hong Kong or Shanghai) without speaking/writing mandarin / cantonese?
2) Would it be easier to move from a group in US/EU to a chinese office at a more senior level (VP or Director)?
3) Is there any way to get exposure to the Chinse market from the US?
Thanks, -F
1)Yes HK but for non-China coverage group only. NO for Shanghai. 2)Yes VP+ position will be a lot easier than A&A. Think about what you can offer.(eg. LevFin expertise) 3)Read. If you can read Chinese it would be better to read local biz news such as Hexun and Caixun, it will help you to understand local point of view. (If you think those are state tightly controlled then you can FUCK OFF cause you dont know SHIT). But there are pretty good non-biz focus HK-based China focus news agency such as Southern China Morning Post which offers English publishing and it has a website but you have to pay. If you want to invest I would suggest strongly against it because you dont seem to know anything about China market. So read before you lose your money.
bump
1) No, not really. They require some level of an East Asian language. 2) Yes, depends on your background and how senior you are. 3) Not really.
You can possibly get a job at a BB in HK with little knowledge of the language. I know during the boom days of 05-07, there were people who got hired by merely showing an interest in asian markets. However, that hasn't been the case in the last couple of years, as Asian ibanks have also slowed in hiring. It's not as bad as the US, but not great. I guess the bottom line is it's possible, but the better your grasp of the language, the better your odds are.
Investment banking in China (Originally Posted: 08/14/2009)
Hallo,
is here anybody who has work IB work experience in China? My question is in how far it is possible to work in IB in China as a foreigner with English being the ONLY language - so no Mandarin skills? Obviously IBs have no shortage of native Chinese people who have studied in the US and are ready to move back to their home country in prestigious positions. So I expect the whole thing to be extremely difficult for foreigners (expecially on junior levels).
Does anyone know people who have made the move to China? I assume HK should be much easier to gain jobs than Shanghai or Beijing. But its especially Shanghai and Beijing I am interested in as I personally see the greatest opportunities over there.
If you have worked in Shanghai, Beijing or HK, it would be great to hear some insights on how you got there, position, lenght of stay and how you personally evaluated your work experience in China.
No experience in China around here?
in china, there are many regulations in the IB business as well as tradings and stuff. so clearly relationship with clients is more important than anything else. i can't imagine you being there with chinese clients and not being able to talk to them in mandarin.
being good at drinking and networking is very very essential in china.
second the drinking and networking
my family runs business in china, taiwan and hk. Networking is by far the biggest part of getting deals done. A lot different from the American culture where the quality of the work actually matters,too.
Agree with the above, RELATIONSHIP is IMPORTANT in closing deals
Interning in HK now, it is OK if you don't speak Mandarin or Cantonese as junior levels (since you are not dealing with clients most of the time) BUT ULTIMATELY you need it if you want to establish your network in China
Working at a BB in Hong Kong doing A-share deals.
I can tell you, if you dont have the language, you have 0 shot. Not a chance in hell unless you're already very senior.
Every caucasian analyst in the office here including the caucasian lawyers are absolutely dead fluent in mandarin. on the phone you cant tell them apart from a native.
If you dont know Mandarin, stay in NY/London.
I've worked in HK. Forget it if you don't know any Mandarin. Even HK is a waste of time for you.
The title says it all really. What are the base salaries + bonuses like for junior analysts in Hong Kong (HKD per month)? What about China? Is it true that the training in HK may not be as good as in Western countries?
US base + bonus, just converted (for me anyway). So probably more than US, since I've heard some pretty ordinary bonuses in US. Also get housing allowance. Not sure why you think HK training is not as good.
China pay is less. Won't get to China unless you're actually Chinese. But why go if it's less.
Thanks charlemenge. The training thing was just something that I've heard.
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