On the afternoon of October 24, 1929 – now known as “Black Thursday” – five of the most influential bankers in the United States gathered at 23 Wall Street, the headquarters of JP Morgan. Hoping to prop up the market, the financiers pooled their resources and bought stocks in index heavyweights such as US Steel. The bailout worked but only briefly. The rout resumed and the Dow Jones Industrial Average plunged another 35% over the next three weeks.
China’s financiers likewise turned to similar tactics to fight their own market meltdown this year. Following a 30% plunge in stocks over just three weeks in July, the country’s top brokerages joined hands to invest Rmb120 billion ($19 billion) in large-cap stocks (see WiC288).
The intervention by the (soon-nicknamed) ‘national team’ was launched by the state-controlled brokerages and led by Citic Securities, the investment banking arm of China’s most pedigreed financial conglomerate.
Since then Citic Securities has come under heavy scrutiny from financial sector regulators, despite heading the rescue effort. At least eight senior officials from the brokerage have been detained or put under investigation for insider trading. And the probes culminated in the announcement last month that its long-serving chairman Wang Dongming will retire next year in a move that surprised many in the industry.
Why? Well, although Wang cannot claim to come from a banking dynasty quite as illustrious as John Pierpont Morgan’s, he does hail from one of the families that helped build the Communist Party of China (CPC). According to Dangshi.people.cn, a website that deals with the CPC’s official history, Wang’s father Wang Bingnan joined the Party as early as 1926 as a staffer and special agent under Zhou Enlai (later the first premier of the People’s Republic of China). Wang senior also played a key part in plotting the Xi’an Incident in 1936, when the KMT generalissimo (and then Chinese leader) Chiang Kai-shek was kidnapped by two of his generals. (It was a crucial moment leading Chiang to cooperate with the Communists in fighting the Japanese.)
Wang ensured his family grew up with an international outlook. He himself had studied languages in Japan and Germany and was a career diplomat after 1949. His first wife, Anna Wong, a German, was the first foreign female officer in the Red Army. She also worked for Zhou, who got her writing articles for foreign publications and working as a go-between with Westerners (Ernest Hemingway included). After they parted, Dongming was born to Wang senior’s second wife in 1956. Among the first students to return to college after the Cultural Revolution, he opted to study French at the Beijing Foreign Studies University, obtaining a bachelor’s degree in 1977. Soon afterwards he and his younger brother Wang Boming were on their way to the US, capitalising on a new programme in which China sent promising graduates to study overseas.
Wang obtained a master’s degree in international finance in 1984 from Georgetown University. His brother picked up the same degree from Columbia University three years later. The pair would become some of the earliest “sea turtles” or haigui (overseas-educated Chinese that return home to work) bringing with them their knowledge of international markets.
Wang Boming joined a core group headed by Wang Qishan (now China’s anti-corruption tsar) that founded the Shanghai and Shenzhen stock exchanges in the early 1990s (see WiC225). He would later create Caijing magazine, one of the country’s most influential financial publications.
Wang Dongming worked briefly as a translator for the China National Tourism Administration in Europe, before joining Scotiabank of Canada in 1987. where he worked as an investment banker for five years. He returned home in 1992 and following brief stints at domestic brokerages, he joined Citic Securities as a deputy general manager when it was established in 1995. He was made a director in 1999 and by 2002 he had taken over as chairman.
At the time Citic was nowhere near the summit of China’s financial sector league tables. CICC was the undisputed champion: under Levin Zhu, the son of former premier Zhu Rongji, it won almost every IPO mandate for the key state-owned enterprises (see WiC257) approved to list in overseas markets such as Hong Kong.
But Wang Dongming sought to challenge CICC’s lead, ignoring a market downturn to push for a Shanghai listing of Citic Securities in 2003, and making it the first Chinese brokerage to go public. Thus better capitalised, he set out to expand its operations and take over its domestic rivals. “Wang Dongming has been the soul of Citic Securities,” reckoned the Economic Observer. “He helped transform a second-tier house into the leading Chinese brokerage.” Caixin Weekly is in agreement:“Wang is widely credited for a series of acquisitions and investments Citic Securities has conducted at home and abroad since 2005 that were part of his pledge to build the firm into a Chinese version of Goldman Sachs.”
Indeed, Wang commissioned a Chinese edition of Charles Ellis’ bestseller The Partnership: The Making of Goldman Sachs, making it required reading for new hires. “For Chinese investment bankers, what Goldman Sachs has experienced in the past is very likely what we will go through in the future,” he wrote in the foreword to the Chinese language version.
Going global was a core strategy. In 2007 Citic had negotiated a $1 billion deal to invest in Bear Stearns, making a narrow escape by pulling out just before the American bank’s collapse in 2008. But the experience didn’t derail Wang’s international ambitions. Citic Securities pushed for a secondary listing in Hong Kong in 2011 – again during a bearish market. A year later it sealed a landmark deal to buy Hong Kong-based brokerage CLSA from France’s Credit Agricole for $1.25 billion.
Its market capitalisation stands at about $33 billion as of this week. CICC, which went public in Hong Kong last month, trades at just $3.2 billion.
At 64, Wang is in the same age bracket as China’s current leadership. President Xi Jinping is three years younger and “has been his friend since childhood”, the Wall Street Journal reports. “He is also tight with the Party’s anti-corruption hawk Wang Qishan,” the Journal adds.
But the news of the investigations into the Citic executives seems to point to Wang’s waning influence. In fact there were suggestions that he was losing favour before this summer’s stock market meltdown. In an example from May last year he was fined two months salary – about Rmb1 million – for quipping in public that ICBC, the country’s largest bank, “made too much easy money considering the services it offered”. According to Caixin Weekly, Party officials assigned to ‘oversee’ the brokerage’s ideological purity penalised him for “hurting the interests and feelings of an important client [in ICBC]”.
Now comes the revelation that Wang won’t be renewing his chairmanship next year “in consideration of his age”. On the contrary, a report in the Financial Times claims it was Chang Zhenming, the chairman of Citic Group, who forced Wang into retirement for failing to supervise his senior executives. Since August three of Citic’s senior officials, who all sit on the executive committee, have been detained by the central authorities (as have another four department heads). According to Xinhua, they are accused of using “advance knowledge of the central government’s market rescue plan to their own advantage”.
Wang hasn’t been named as a target in the investigation himself. But his retirement seems linked to the scandal, as well as media reports that the brokerage be more tightly controlled by its parent, Citic Group.
He was replaced as Citic Securities’ Party boss by Chang Zhenming.
“Given his age [Wang] was allowed to have face,” an unidentified executive told the FT, before warning that more departures are likely. “The earthquakes in the financial sector are just beginning,” he predicted.
The crackdown has already led to the removal of a number of officials at the CSRC, the regulatory agency (see WiC297), and the authorities are extending their investigations to more of the state-run brokerages. Rumours about who may be detained next are commonplace, with the share price of Guotai Junan International, the Hong Kong listed unit of one of China’s biggest securities firms, under selling pressure since it reported that it hasn’t been able to contact its chairman and chief executive Yim Fung since November 18.
Executives at China Haitong, the fourth-largest brokerage, are also said to be under investigation.
Financial sector bosses are waiting nervously to see what happens next, although sections of the international media have been more forthright in their interpretation of events. One view: that the competence of the Xi administration was thrown into question in the summer, and that the subsequent crackdown is more about shifting some of the blame for the mishandling of the market meltdown.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.