One Billion Customers - James McGregor [35]
Atop China’s agenda has been attracting foreign capital and financial know-how. This is the story of how some of the most powerful and influential people in China’s nascent finance industry joined forces with one of America’s most sophisticated investment firms to provide that much-needed capital and financial industry knowledge. I have been acquainted with Jack Wadsworth and Wang Qishan for years. When I heard that they were behind China’s first joint-venture investment bank I pegged it as a certain winner. Within their own cultures, the two men are very much alike: forceful leaders with loyal followers, impatient visionaries who get things done. They would make a great team. I was wrong. This isn’t a story of bad people and good people. It is a tale of two business cultures that came together in a clash of civilizations, an all-too-frequent problem for joint ventures in China. The only groups that seem to like joint ventures are the government, and the law firms that rack up endless billable hours putting the ventures together and then taking them apart a few years later.
Today, foreign companies in China avoid joint ventures whenever possible and this story shows why. But in many industries, a joint venture is still the only ticket into China. The story of CICC will show you what Morgan Stanley and China Construction Bank learned the hard way, but it also illustrates the pathways toward making joint ventures a success.
The Next Big Thing
Jack Wadsworth was looking for the next big thing. That was how he had built his stellar career among the smart, aggressive, and competitive bankers at First Boston and then at Morgan Stanley. His entrepreneurial bent enabled Wadsworth to see and take advantage of opportunities before his competitors, both within Morgan Stanley and at other big investment banks. If leveraged buyouts were hot, Jack Wadsworth was there at the head of Morgan Stanley’s first LBO fund. When computers and memory chips drew attention, Jack Wadsworth was there at the head of Morgan Stanley’s fledgling Silicon Valley venture capital group. And when Japan’s stock market took off in the 1980s, Jack Wadsworth was there, representing one of only six foreign investment banks with seats on the Tokyo Stock Exchange.
From his vantage point in Tokyo, Wadsworth thought he saw the next big thing and it was really big: China! A government thoroughly worried about China’s sagging fortunes had been trying for years to put in place economic reforms that would end decades of stagnation. Given the slightest encouragement, the entrepreneurial Chinese were frantically seizing any opportunity to do business. If they weren’t setting up their own business, they were investing in somebody else’s. Hundreds of state-owned companies seeking to break free of their bureaucratic masters were issuing shares in an unregulated and informal stock market, and the government was clumsily trying to figure out how to prevent the worst scams. Foreign investment banks accustomed to operating in regulated markets with some semblance of law and order were skeptical but intrigued by China. While others looked, Jack Wadsworth acted. If Morgan Stanley could get in on the ground floor of the immense economic boom that was building in China, it would trump all its competitors. To make Morgan Stanley the leader in China would be a triumphal capstone to Wadsworth’s career.
The first step was to get out of Tokyo and go southwest to Hong Kong. In 1991, China’s business systems were still primitive. Much of the business between China and the rest of the world was done in Hong Kong. It wasn’t hard for Wadsworth to persuade his bosses in New York to let him take over Morgan Stanley’s office there.