One Billion Customers - James McGregor [44]
At that time China was about halfway through the largest and fastest telecom buildout the world had ever seen. In the 1990s, China went from a phone system that would have been right at home in many impoverished African nations to a state-of-the art mobile and fixed-line network that was the envy of both the United States and Europe. From 1990 through 1995, the government invested about $30 billion in the network, mostly financed by foreign vendors and their governments. But that game was running out. Wu Jichuan, the powerful chief of China’s Ministry of Posts and Telecommunications, needed a new source of capital.
Back in Beijing, Fang drafted a proposal for China to buy Hong Kong Telecom. It was an audacious scheme, one that typically conservative Chinese officials would reject out of hand. But Wang Qishan liked the idea. He passed it along to Wu Jichuan at the Ministry of Posts and Telecommunications. After reading the proposal Wu called Fang at home. “What I really want most is that company,” he said, referring to Hong Kong Telecom.
All this time Morgan Stanley was among the leading investment banks financing a similar telecommunications boom in the United States. Fang figured it made sense to bring in Morgan Stanley to advise and market the creation of what would become China Telecom. Yet Morgan Stanley’s telecom bankers in New York firmly rebuffed Fang. With the trademark hubris of New York investment bankers, they told him that China couldn’t do a deal big enough to draw them away from their booming U.S. business.
“They treated him like a dumbshit,” said a former Morgan Stanley executive familiar with the encounter. “The Morgan Stanley culture was that if you aren’t one of us, you are a dumbshit.”
But Fang had other options. As his relations with CICC’s Morgan Stanley people worsened, Fang found himself being courted by John Thornton, the chairman of Goldman Sachs Asia. Goldman Sachs might not have wanted to do a partnership with China Construction Bank, but it badly wanted to do business with CICC. When Thornton learned of Fang’s ambitious plans to launch overseas listings of China’s telecom assets, he immediately summoned Mike Evans, head of Goldman’s Equity Capital Markets, to China to encourage Fang to ally with Goldman. In January 1997, in a secret planning meeting at a resort on Hainan Island, Fang, Thornton, and a handful of Goldman Sachs bankers and MPT officials, worked out a plan to create China Telecom (Hong Kong) Ltd. The company would hold the assets of China’s two largest mobile phone operations, Guangdong and Zhejiang provinces, which made up nearly 30 percent of the nation’s mobile subscribers, and would later buy Hong Kong Telecom. Investors would also have the chance to own other provincial networks that would be injected into the company over time.
The bold plan would have to be approved at the very highest levels of the Chinese government, where the final decision on whether to go ahead and with which partners would be made. Wang Qishan, of course, had been kept fully informed by Fang as the outlines of the deal grew more detailed. Now, President Jiang Zemin and Vice-Premier Zhu asked Wang who would be the best partner for CICC to do the China Telecom deal. Wang recommended that Goldman Sachs get CICC’s largest deal ever. Wang’s recommendation reflected the deteriorating relationship within the CICC partnership. But China’s leaders already had deep suspicions about Morgan Stanley’s true intentions. The Chinese government had been promoting the Hong Kong market for Chinese listings and was trying