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Bulls in a China shop: How Beijing cultivated Wall Street’s giants

Beijing has been working on Wall Street for a long time. When Prime Minister Zhu Rongji visited the United States in 1999, he holed up in New York’s Astoria Hotel and spent days in back-to-back meetings with business leaders. “Zhu seems never to tire of courting Corporate America,” reported The New York Times.

The titans of US finance have for decades been guiding the nation’s China policy. Whenever presidents Clinton, Bush or Obama threatened to take a tougher stance on China’s trade protectionism, currency manipulation or technology theft, Wall Street chiefs used their influence to persuade them to back off. And it was pressure from Wall Street that proved decisive in the Clinton White House’s decision to support China’s admission to the World Trade Organisation, despite China’s serial violation of trade rules.

Illustration: Richard Giliberto

Illustration: Richard GilibertoCredit:

Twenty years later, The New York Times was writing: “In Washington, on Wall Street and in corporate boardrooms, Beijing has used the country’s size and promise for decades to quell opposition and reward those who helped its rise.” Financial institutions have been Beijing’s most powerful advocates in Washington.

The finance sector – the big banks, hedge funds and investment vehicles – is thus in the centre of the map of power in the US, and occupying pride of place is Goldman Sachs. No organisation has been more important to the CCP’s campaign to penetrate US elites, or more willing. For the CCP, titans of finance are easy targets, as there’s a concordance of interests. Wall Street executives, anticipating an Eldorado when Beijing opens up its vast finance markets to foreigners, have been advising Chinese companies about which American companies to buy and lending them the money to do it, taking a cut from the sales. In the words of a senior White House official, “people who like making deals really like the Chinese Communist Party”.

The CCP is pushing on an open door. But the alignment of interests may not be long term, as it’s Beijing’s intention to eventually make Shanghai the financial capital of the world, displacing New York and the City of London. As Lenin reputedly said: “The capitalists will sell us the rope with which we will hang them.”

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By 2003 Goldman Sachs “had become the lead underwriter for major Chinese state-owned companies”. In 2006 Henry Paulson moved from CEO of Goldman Sachs to Treasury secretary under George W. Bush, taking with him one of the best contact books on the Chinese elite. Paulson had visited the country some seventy times. He asked the president if he could take charge of America’s China economic policy and Bush agreed.

But Paulson, in the judgement of author and journalist Paul Blustein writing in Foreign Policy, screwed up. Blustein argues that if Paulson had responded more forcefully to Beijing’s currency manipulation, tight control of state-owned enterprises, mistreatment of US enterprises in China and program of technology theft, then the conditions that led to the trade war might not have arisen. Instead of recommending retaliatory actions to protect US companies, Paulson worked to head them off in Congress, proposing to hold a “Strategic Economic Dialogue” which began in December 2006. Needless to say, this gave the advantage to Beijing.

Then-treasury secretary Henry Paulson (right) with then-president George W. Bush at a White House briefing in 2007.

Then-treasury secretary Henry Paulson (right) with then-president George W. Bush at a White House briefing in 2007.Credit:AP

Paulson, a good friend of Beijing’s then-mayor Wang Qishan, and already inclined to look benignly on the Party’s efforts to open up the economy, was being manipulated. The CCP was drawing him further into its inner circle, stoking his perception of his own influence. He was granted a private, one-on-one briefing with President Hu Jintao.

After Paulson left office in 2009 – having overseen the global financial crisis, during which he phoned Wang and begged him to order a state-owned Chinese bank to bail out Bear Stearns – the Goldman Sachs alumnus set up the Paulson Institute, dedicated “to fostering a US-China relationship that serves to maintain global order”.

John Thornton is another influential graduate of Goldman Sachs. He led Goldman’s entry into China and when he retired as the bank’s chairman in 2003, he became director of the Global Leadership Program at Beijing’s Tsinghua University. Thornton is a strong supporter of the scholarship program at Tsinghua funded by billionaire investor and Trump friend Stephen Schwarzman, and he sits on the board of a number of top Chinese and American corporations. In 2006 he put his money into a new China Center at the Brookings Institution, where he is chairman of the board of trustees. In 2008 the Chinese Communist Party gave him its highest award for foreigners, the Friendship Award of the People’s Republic of China.

BlackRock chief Larry Fink (right) with US President Donald Trump and Wal-Mart chief Doug McMillon at the White House in 2017.

BlackRock chief Larry Fink (right) with US President Donald Trump and Wal-Mart chief Doug McMillon at the White House in 2017.Credit:Getty Images

This part of the Wall Street story would not be complete without mentioning the US investment fund BlackRock, the world’s largest, with $6.5 trillion worth of assets under management. In 2019 its CEO, Larry Fink, told the company’s shareholders that he planned to turn BlackRock into one of China’s leading asset managers, saying he would be ready to take advantage once Beijing opened up its capital markets to foreigners, and that he aimed to become one of the first foreign-asset managers to raise renminbi funds in China.

While the power of Wall Street in setting China policy has been real enough, in 2017 something changed. US manufacturers decided they had had enough of their intellectual property being stolen and they were no longer willing to wait for Beijing to honour its promises to liberalise China’s economy and provide a level playing field for American firms.

The US Chamber of Commerce published a report saying so, driving a wedge between finance and manufacturing, a gap that allowed the Trump administration, backed by the Democrats, to muscle up to Beijing. This prompted intensified lobbying by the finance sector and closer coordination with its allies in Beijing.

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The princelings of Wall Street

The CCP has not been content to rely solely on a concordance of interests between Beijing and big finance in the West. Another important avenue of influence is the princelings – the sons and daughters of top Party leaders past and present. For years, the giant state-owned investment company CITIC has been dominated by princelings, as has China Poly Group, the conglomerate built around arms manufacturing. China’s burgeoning private equity sector is controlled by the “red aristocracy” and their children.

For Western hedge funds, insurance companies, pension funds and banks, a prerequisite for doing business in the emerging, highly lucrative Chinese capital markets is a network of connections to the families that control the largest companies and dominate the Party hierarchy. Giving jobs to the sons, daughters, nephews and nieces of these families brings immediate guanxi, or personal networks for reciprocal benefit. The offspring need not be well qualified or even especially bright; it’s their connections that count. An ideal career path for a princeling is an undergraduate degree at a prestigious university, preferably an Ivy League college or Oxbridge, then straight onto the trading floor of a big bank or hedge fund in New York or London and after a few years there, an MBA and then a Wall Street firm.

Fang Fang speaking at the 21st Century Annual Finance Summit of Asia in Beijing in 2011.

Fang Fang speaking at the 21st Century Annual Finance Summit of Asia in Beijing in 2011.Credit:AP

An unusual insight into how this works was provided by an inquiry by the US Securities and Exchange Commission in 2016, which led to JP Morgan paying $264 million for violating the Foreign Corrupt Practices Act. JP Morgan had been caught hiring Chinese princelings to win business, something the commission described as “systematic bribery”. The company operated what it called the Sons and Daughters Program, which provided dozens of jobs in Hong Kong, Shanghai and New York to children of the Party elite.

One was Gao Jue, the son of China’s commerce minister, Gao Hucheng. A recent graduate of Purdue University, Gao Jue landed a job after a meeting between his father and senior JP Morgan executive William Daley. (Daley was a US commerce secretary under Clinton and pushed for China’s entry into the WTO. He later served as president Obama’s chief of staff.)

Gao Jue interviewed poorly but was offered a coveted analyst position with the bank. Prone to falling asleep at work, he was soon judged to be an “immature, irresponsible and unreliable” employee. When, as part of a general downsizing, the bank later wanted to lay him off, his father took the head of the bank’s Hong Kong office, Fang Fang, to dinner and pleaded for his son to be kept on, promising to “go extra miles” for JP Morgan in its China deals. Fang was persuaded and a senior executive in New York agreed to keep Gao Jue on, even though the executive’s own son had been laid off. Business is business. When Gao Jue was eventually let go, he took other finance jobs before winding up at Goldman Sachs.

There are, of course, many mainland Chinese working in US finance who are highly competent and deserve their positions, often very senior ones. Fang is one example. He graduated from the prestigious Tsinghua University in the 1980s and then studied for an MBA at Vanderbilt University in Nashville. In 1993 he took a job at Merrill Lynch, working in New York and Hong Kong, and in 2001 he began a 13-year career with JP Morgan, rising to the position of chief executive for China investment banking, based in Hong Kong. In that time he brokered the appointment of many sons and daughters to positions within the bank. He also gained intimate knowledge of the personal finances of some of China’s ruling elite. The New York Times described Fang as having a “deep network of contacts in Chinese government and business circles”.

While not CCP royalty, Fang is on very close terms with the red aristocracy. Fortune describes him as “a media-friendly executive with close ties to the Communist Party”. In 2011 he founded the Hua Jing Society in Hong Kong, a social club for the children of mainland elites who had studied abroad and returned to Hong Kong. The society has been described as the Princelings’ Club and the Hong Kong branch for CCP princelings.

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For the CCP elite, entanglement with the masters of Wall Street through the placement of scores of princelings serves a more important purpose than employment for their kids. It is a means of gathering intelligence and exerting influence because it places its informants and agents in the heart of American power.

The entire workings of a US firm may be sent back to a father or an uncle in China, along with confidential information on the personal and financial affairs of the wealthiest people in North America.

The CCP in the City of London

European financial institutions were not slow to recruit princelings either. In the 2000s Deutsche Bank, Germany’s biggest, used bribes and corrupt practices to gain access to China, including showering expensive gifts on leaders, especially the family of then prime minister Wen Jiabao and then Beijing mayor Wang, today a member of the Politburo’s inner cabinet, the Standing Committee.

In 2009 Deutsche Bank beat JP Morgan to a deal because it had employed the daughter of the client’s chairman. The bank also had an active program of employing the children of powerful officials. Among them was the son of then propaganda minister Liu Yunshan, and one of the daughters of Li Zhanshu – now one of the seven on the Standing Committee – even though both were rated unsuitable for the job.

In Zurich, Credit Suisse employed Wen’s daughter. Credit Suisse kept a spreadsheet that tracked princeling hires against how much money they brought in. It hired over 100 sons, daughters and friends of senior government officials. One “princess” was employed after Credit Suisse bankers helped massage her resume. Once on the payroll, she often didn’t show up for work. When she did, she was judged “rude and unprofessional” and sometimes brought her mother with her. Nevertheless, she was paid $US1 million a year and given a number of promotions because her family awarded deals to the bank. (In 2018 Credit Suisse agreed to pay $US77 million to US authorities to avoid prosecution on bribery charges.)

While the placement of princelings and promises of access to China’s huge financial market have been the foremost avenue of influence in Wall Street, in the City of London the situation is different.

London’s financial district – the square mile known as the City of London, or simply the City – is also the financial hub of Europe, giving big finance an inordinate influence in British politics.

Hidden Hand by Clive Hamilton and Mareike Ohlberg.

Hidden Hand by Clive Hamilton and Mareike Ohlberg.Credit:

Brexit has many wondering whether the City can retain its dominant position or will be displaced by its rivals in Frankfurt or even Paris. The mandarins of the City have been working hard to ensure its pre-eminence, which provides a golden opportunity for Beijing.

It would be an exaggeration to say that if Beijing could control the City it could control Britain, but not a large one. An ominous, if small, sign of the influence Beijing already wields came in May 2019 when the City of London Corporation, the district’s municipal government, banned Taiwan’s office in London from contributing a float to the annual lord mayor’s parade.

Today the City of London Corporation can’t get enough of China. In March 2019, two months before he banned Taiwan’s float in his parade, Lord Mayor Peter Estlin joined a delegation to China to promote “fintech and green finance” links, along with the City’s role in the Belt and Road Initiative (BRI). While there, Estlin talked about the important part the City plays in China’s success. Interviewed on Phoenix TV, he revealed that the City would be hosting a banquet the following September to celebrate the 70th anniversary of the People’s Republic. The lord mayor praised the BRI’s “win-win culture” and said he sees the City playing a vital role in helping to finance “a fantastic initiative” and a “very exciting” vision.

The delegation was led by John McLean, a board member of the China-Britain Business Council, who declared that “London is open for business for Chinese financial and tech companies”. Earlier in 2019 the chair of the City of London’s policy committee, Catherine McGuinness, welcomed the launch of the global edition of the CCP’s China Daily, noting that the paper “is based in the Square Mile and is a good friend of the City of London Corporation”.

This is an edited extract from Hidden Hand: Exposing How The Chinese Communist Party Is Reshaping The World by Clive Hamilton and Mareike Ohlberg (Hardie Grant Books), published on June 16.

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