Tuesday, August 27, 2013

More Positve On China. Guo Shuqing Back in the News. Shandong as Financial Canary in a Coal Mine?

When researching and writing my 'group reports' I come across individuals that I like tracking as a general gauge of how an economy is doing.  Business and government are ultimately made up of people and I figure that if good people are moving up the ladder then things are likely going in the right direction.

These are people that appear to be doing-the-right-thing instinctively, rather than doing it for a particular gain.  They lead the curve rather than follow it.  

Sheila Blair in the US is one such person.  She seemed to be a lone voice of reason and common sense in US financial service regulation during the George Bush-era.

Pak Sugiharto, ex- Minister of SOEs in Indonesia is also someone I have a lot of respect for. His appointment to that ministry was shortened because his reforms were too effective and too many powerful people complained.  He is now President-Commission of Indonesian oil giant Pertamina and seems to have done a good job in reforming what had been an extremely corrupt organization.  He recently speculated that some of Pertamina's subsidiaries may be floated. 

Guo Shuqing is another such individual. I came to know him when I was researching my 2011 book, Inside China's Corporations.  At that time, he was the chairman and executive director of China Construction Bank (CCB), one of China big-four state-owned banks. He is a reformer and is a behind a number of China’s large financial institutions including the State Administration for Foreign Exchange (SAFE - one of the biggest pools of capital in the world.  It manages China’s vast foreign exchange reserves).  He later helped create and lead Central Huijin Investment Limited, which holds the government's equity stakes in its SOE banks and financial institutions. He became governor of Shandong province in March 2013 after a short stint at China Securities Regulatory Commission (CSRC) China’s version of the US SEC.

Guo Shuqing was back in the news today.  An article in today’s SCMP noted that Shandong has released financial sector reform plans.  These include "setting up private banks and leasing firms, carrying out trials for issuing local government debt, and developing asset securitization".  The article also speculated that Qingdao could be come a regional financial centre to promote free trade between China, Korea and Japan.

An academic quoted in the article goes on to say that Shandong may be used as a testing ground for financial reforms.  This would be in line with past government efforts to try things on a local level before making a change at the national level.  The most notable example of this is the mid-1980’s special economic zones.   

As governor of Shandong, Guo Shuqing reportedly amended the guidelines to make them more market oriented.  His background and connection to the central government likely give more credence and strength to these reforms. This could also be a sign that this Fall's CCP Third Party Plenum will be reform oriented.

These all sound good, but is to be taken with a large grain of salt. The best laid plans anywhere go awry and there are likely large vested interests in Shandong that are against any change.  Politics is impossible to predict.

What I like about this is that somebody who appears to be doing the right thing is moving up.  This is good and makes me feel more positive on China, its economy, and its markets.  


More on Guo Shuqing

Guo Shuging studied law at the prestigious Chinese Academy of Social Sciences, worked in two economic-reform government bodies and was a visiting scholar at Oxford. He helped establish, and was one of the first directors, of SAFE.  He later became the Chairman of the newly created Huijin.  He has political leadership experience having been the vice-governor of Guizhou province between 1998 and 2001.

He was brought into as CCB's Chairman in 2005 following the former chairman's resignation amid bribery charges.  He was unique amongst the big-four bank managers as he was the only one to sincerely make use of its foreign joint-venture partner.

While others paid lip service to using their foreign partners' technology, experience and people, my research pointed to Guo Shuqing personally engaging and integrating Bank of America's more advanced card and other products’ processes and technology.   CCB's share price did well, and I regularly see it recommended as a favorite among foreign sell-side research banking analysts.  Between November 2006 (when ICBC became the third large SOE bank listed) and November 2011 (about the time Guo Shuqing left CCB), CCB’s share price increased by 23ppt to 52ppt more than the other two listed banks.

After CCB he was moved to head the CSRC, which is analogous to the US SEC or HK's SFC.  In line with his reformist background, he rolled up his sleeves and started to institute long-term reforms at the agency.  He did not see many of these through as he was only there for 17 months.  Feedback from my Hong Kong buy-side friends said that he was set on reforming the organization even more, but met too much resistance from vested interests.  

He was appointed to the governor of Shandong province in March 2013 (article here).


Shandong

For those who don't know, Shandong is one of the largest and richer provinces in China.  It has 94m residents and accounts for almost a tenth of China's GDP.  It is famous as the birthplace of Confucius.

Situated halfway between Shanghai and Beijing it tends to get overlooked by the other two regions.  

I used to go there often in the mid-1990s when I was looking at a possible private-equity investment. At the time, Shandong reminded me of Ohio, a very important US state that gets overshadowed by more famous American cities and places.  If one thought of a 'heartland' in China, I would put Shandong at or near the top of the list. 




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