One Billion Customers - James McGregor [38]
Wadsworth resumed his search for a possible banking partner while continuing to oversee Morgan’s Asian business from Hong Kong. It was over dinner with a Hong Kong friend that Wadsworth learned about Edwin Lim’s plan for a joint-venture investment bank. Within days Wadsworth was winging his way to Washington to have lunch with Lim. After forty-five minutes of cautious parrying, Wadsworth pulled out the letter he had sent to Wang. Lim himself might have drafted that letter, so close was it to what he had proposed to Zhu. Lim didn’t tell Wadsworth that he had already approached Goldman Sachs. Goldman’s Hong Kong office feared an alliance between Goldman and a Chinese government bank. Now here was Morgan Stanley coming to him. This time it might work.
Early in 1994 the last piece of the puzzle fell into place. Wang Qishan returned to China Construction Bank, this time as president. He carried a mandate from China’s leaders to make a joint-venture investment bank his top priority. Not only would such an undertaking be a bold next step in China’s financial reforms, it was necessary to prop up the country’s four huge state-owned banks. The banks had long served as the fuel tanks for China’s extensive welfare system. The banks were stuffed with the savings of China’s thrifty citizens, who on average socked away 40 percent of their income. The banks, in turn, doled out that money in government-directed loans to state enterprises. Many of those loans went to unprofitable enterprises that existed only to provide jobs and paychecks to keep workers off the streets. A Chinese investment bank that could help Chinese state companies gather foreign capital was crucial to China’s continued economic growth.
The Rules of the Game
Wadsworth was accustomed to getting what he wanted, and he wanted Morgan Stanley to have a 50 percent interest in a joint-venture investment bank with China Construction Bank holding the other 50 percent. Morgan’s 50 percent stake simply wasn’t negotiable, he said.
But Edwin Lim knew better. The Chinese thought the joint venture was too important to have only one foreign investor and Wadsworth would simply have to accept that. But to save Wadsworth some face, the Chinese did agree that there would be a fifty-fifty split between Chinese and foreign investors. Lim used his many contacts to bring together a disparate but accomplished group of investors, including his old friend Payson Cha. In the end China Construction Bank had a 42.5 percent interest in the venture, Morgan Stanley held 35 percent, and the rest was distributed among various investors. The initial capitalization was set at $100 million, with each partner contributing an amount equivalent to its stake.
The partners in what would become China International Capital Corporation, or CICC, went out of their way to show sincerity and goodwill at their first planning meeting in April 1994 on the Sentosa resort island in Singapore. The major question was how to organize and operate the joint venture. Wang Qishan explained that the Chinese preferred to develop mutual trust with their partners before working out such business details. Lim countered that in the West business discussions started with principles and details. The personal trust flowed naturally from those detailed discussions.
Then Wadsworth spoke up. “I agree one hundred percent with my friend Wang Qishan,” he said. “If you can’t become friends, then you can’t do business. It doesn’t matter if you’re in the West or the East. You have to respect people and then you will be respected.”
One of the biggest issues was who would run the enterprise. As president of China Construction Bank, which held the largest stake in CICC, it was logical that Wang Qishan would be the majordomo and would name the venture’s chief executive officer. But Lim patiently explained to him that if China were going to get the maximum benefit from