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Euromoney, May 9 2019

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International IBs pride themselves on the diversity of their business in Asia Pacific, but a bank without a decent China business in this region is nowhere. It is the engine of both regional and global growth.

“It’s important for us as a business to be diversified,” says Gokul Laroia, co-head of global equities and co-chief executive Asia Pacific at Morgan Stanley. “But our number-one priority here is China – and in my view is it is just getting going.”

You can see why. According to Dealogic, China accounted for 74% of ex-Japan Asia investment banking fees in 2018 and is tracking at the same amount for 2019. In debt capital markets, it accounted for 83% of fees last year. Even if Japan and Australia are thrown into the mix, China accounts for 51% of fees in 2019 to date.

Where China once tracked growth in the markets, now it drives it. Asia Pacific issuance in the primary bond markets has grown from $60 billion 10 years ago to a peak of over $400 billion in 2017, according to Bank of America; China accounts for $230 billion of the 2018 number. Year to date China accounts for $50 billion of $85 billion. At the same time, China’s domestic bond market has grown to be the third largest in the world, worth the equivalent of almost $13 trillion at the end of February.

But the challenge with China is that the opportunity itself keeps moving, and banking models need to move with it in order to be well-positioned and relevant.

James Paradise, co-president and head of the securities division at Goldman Sachs, thinks of China businesses as having gone through three distinct phases.

The first came 15 to 20 years ago, the golden era of outward-bound state IPOs such as Petrochina and China Telecom (now China Mobile).

These were massive, complex, frontier-spirited deals. On Petrochina, the $2.9 billion April 2000 IPO, led by Goldman and CICC, involved two years of advice from the banks. A whole new company was set up using 480,000 of China National Petroleum Corporation’s 1.5 million workforce and a clutch of its upstream assets. The China Telecom IPO, which not only brought an entire industry to international markets but did so on the day in October 1997 that the Hang Seng fell 10.2%, was at $4.25 billion the biggest Asian equity offer to that date. (It was full of cornerstone investors; some things don’t change.)

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Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

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