Q: How vital to Morgan Stanley is China?
A: China is clearly the critical market to get right. You can get the rest of the region right, and yet if you get China wrong, you’ve got the whole region wrong. China is not a one-year thing. It’s not a red chip craze, or H share craze. There are fundamental reforms going on. Our view is that these have 10-20-year legs in terms of potential.
Over the next 20 years China will produce at least 20 major companies that will attract global strategic capital. To me, the opportunity is big and is not just a flash in the pan. I was with a journalist today who questioned whether this is a blip and would be like Indonesia. To me, having been in this market for 10 years, I think this is very real.
The way to approach the opportunity is to think how can we help China Inc do what it wants to do. What industries need reform, where can capital be best employed and then proactively bring those ideas to the various senior people in Beijing.
And our approach to China is not a star-system approach. It’s the ultimate team game. No matter how good any one of us think we are, we are one piece of the puzzle in our approach to China.
Our industry expertise globally is really valued in China. We know what’s worked in privatizations elsewhere and what hasn’t. We spend a lot of time brainstorming with our partners at CICC about these issues.
The CICC relationship is another thing. It’s a real partnership, and we think a lot about how we can help ourselves by helping them. The partnership has never been better than it is right now. This is the best it has ever been. CICC has a terrific position in the market. We want to demonstrate our desire to do as much with them as possible.
Q: How will the appointment of Peter Clarke improve this relationship?
A: Peter Clarke is a world-class investment banking manager. He has worked for Merrill and Salomon Brothers. He adds a level of additional professionalism that any organization would benefit from. He’s not just a secondee from Morgan Stanley. We’re beyond that.
Q: I thought the whole point of Morgan Stanley’s position in CICC was that you would work together on deals out of China. It hasn’t quite panned out that way.
A: That would have been my hope, and everyone else’s in Morgan Stanley. But it was totally unrealistic. CICC has enjoyed a dominant role as China’s local bookrunner - but there’s no way a foreign firm could expect to match that market share.
It’s funny, I think of CICC almost as a client – even though we own a stake in them. But there’s no way we can realistically think of it as a monogamous relationship. CICC will work with other banks. As a shareholder, we want CICC to be an independent, world-class investment bank, and to achieve this it is important that it works with a range of partners.
Q: What percentage of your revenues came out of China?
A: I’d say somewhere around 30%.
Q: You’re bullish on China?
A: My big theory on China, and one of the reasons I am very bullish is because I think this is a 10-year trend and that China will continue to do privatizations that work – not only at the time of the IPO but in the aftermarket. These companies are committed to continued revenue growth and expense reduction, which means increased profits. China Inc is completely converted to this notion of profit growth.
It’s very clear to me that China is committed to that principle. Investors will make money on these companies. That’s why investors will continue to support these privatizations.
