May 19, 2006
Wall Street's Battle for China
Posted by Fred Tung

Fortune Magazine has a nice piece on the battle for China among the big Western investment banks.  It opens by describing the beauty contest to lead the upcoming $12 billion IPO by the Industrial & Commercial Bank of China, a contest for which Goldman Sachs seemed to have the inside track.  (See here and here for other recent coverage of Goldman).

Goldman Sachs was the hands-down favorite. Its executives had courted ICBC for years. On his many trips to China, CEO Hank Paulson had called regularly on chairman Jiang Jianqing. Jiang's daughter had worked as a summer intern at Goldman in New York City. Earlier this year Paulson had underscored the firm's commitment by pledging to buy a 7% stake in the bank for $2.6 billion.

ICBC hadn't even invited Goldman's archrival, Morgan Stanley, to submit a proposal, allowing Fred Hu, a polished, Harvard-trained economist, to make Goldman's pitch with confidence.

Of course, Goldman got aced out of the offering, which went to a group including Merrill, Credit Suisse, and Deutsche Bank.  The story goes on to describe the increasing sophistication of Chinese leaders in playing I-banks off against one another, and the cutthroat competition among the I-banks not only for deals, but for experienced China hands and strategic partnerships with local firms.

Citigroup has apparently had some tough sledding in China, earning ignominy by having led the only China IPO to date that had to be pulled--the CNOOC IPO in '99 (the same CNOOC--China National Offshore Oil Corp.--that bid for Unocal last year).  So like a good strategic player in China, Citigroup beefed up its guanxi by hiring former Premier Zhao Ziyang's daughter-in-law for a salary in excess of $8MM.  Things didn't work out so well . . . but I'll let you read the rest.

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