A Trip Down Memory Lane


The faces have changed since the early days of China’s capital markets experiment, but the vision remains the same.

I t felt like I was in a time warp when I headed back to the canyons of Wall Street to work on the US capital markets cover story this summer. The stifling heat of the Big Apple brought back memories of a summer long past, more than two decades ago, when I covered the Wall Street beat for what was then the newly emerging China capital markets experiment.

The names of the various banks and exchanges were all more or less the same, with slight variations and additions here and there. Though the faces were for the large part new, they looked a lot like those I remembered from days gone by. These Americans may have been part of the new generation of China stock listings promoters, and certainly much water had passed under that bridge, but for the most part they dealt with many of same challenges of those of yesteryear.

I flew into Beijing as a young journalist at the invitation of Citibank’s American Depositary Receipt team in 1992. They were headed to China to sponsor the first formal high-level conference on stock listings in America and the ADR sales team suggested it would be interesting for me if I tagged along. Having never been to China, except for a quick tourist visit to Guangzhou, I thought this would be a good time to have a look.

Life was much different in the capital city at that time. The tree-lined streets were made for bicycles, not the millions of cars that rule the city today. Back then if you were lucky enough to have a car you could park on the street for 10 cents a day, compared to the Rmb10 per hour car drivers fork out now. When I looked at the night skyline from the window of the Shangri-la Hotel in the western corner of Beijing, a five-star icon that remains to this day in an expanded version, the city was dark, smattered with the glow of fluorescent white lights twinkling away like stars in the night.

Listings Experiment

That was the Beijing I remembered – and enjoyed so much. It was not the amazingly modern metropolis it is today, a financial center of epic and growing proportions. But it was special. And, I fondly recall the bankers and financial executives that made their way to Beijing for this unique summit. There were high-ranking financiers, Nobel Prize Winners as well as top rank Wall Street lawyers and accountants. They were all there to bring the message that America was open for business, and Chinese listed companies were welcome to the bastion of capital.

That was the start of the capital markets experiment. Local stock exchanges were in the throes of opening their trading floors in buildings that looked more like warehouses than the cubic magnificence of the Shanghai Stock Exchange today in Pudong. In fact, there was no Pudong as we know it today, just rice paddies. Still, the vision was there. Pudong was on the drawing boards, and, you know what, today it looks pretty much like the plastic model that Pudong’s architects showed me back then.

I guess that was the point of it all. China had an idea of where it was headed and the grandeur it could attain, if only the investment could be attracted to realize the dream. The country knew that it needed to form a capital markets culture to woo the largest pools of money in the world, and to do so China had to provide value and returns to investors. In retrospect, on the whole, China has done that, as most of the world’s leading investors now have some China exposure in their investment portfolios.

In this experiment, China never promised that its companies would provide returns in the many thousands of percent, like Alibaba and Tencent eventually did two decades or more later. The financial planners of that age only knew in their hearts that China was about to embark on one of the greatest growth spurts of any nation in the world, one that would turn heads and make global news for years to come. Perhaps they were not sure how all this could actually be achieved, but I am sure they
had a good idea.


American Pioneers

Still, in those days the first American capital markets pioneers that made their way to China were more down to earth. They simply hoped that a new market for their financial products and services would emerge, and that their bonuses would be all the better for it. These seasoned Wall Street veterans had seen it all before with the Asian Tigers, the Lost Continent of Latin America, the stellar emergence of the Land of the Rising Sun. But, there was something special about this discrete summit in Beijing that everyone felt.

China was ready to do business and wanted to hear what Wall Street had to say. Leading politicians and influential bankers made time to see the various delegations. From the halls of the central bank to the inner chambers of the State Council, the meetings and banquets were arranged to host their American guests at the Diaoyutai State Guest House.

Perhaps what I remember most about that trip, besides the sumptuous Beijing Duck and burning white liquor, was a summit with one of the senior leaders of China’s economic reform. Harry Markowitz was on hand that day. He had just received the 1990 Nobel Memorial Prize in Economic Sciences. Best known for his work in modern portfolio theory in the study of the effects of asset risk, return, correlation and diversification on probable investment portfolio returns, Markowitz was eager to make his well-rehearsed presentation to the high
level gathering.

Shocking Revelation

We were all seated in the formal conference room, plush rugs with deep chairs covered in silk positioned around the perimeter. Tea was served and the usual pleasantries were being exchanged, translated for the leader of the Chinese delegation. After all the formalities were finished, those present settled in to hear what Markowitz had to say. It was not every day that a Nobel Prize Winner addressed the China leadership.

Markowitz started by introducing the American capital market in basic terms. He noted that the world’s largest capital market was a prime vehicle for those interested in the formation of capital. At that moment, the senior leader cleared his throat as a sign that he wanted to say something. He whispered a few words to his translator. “Excuse me Mr. Markowitz,” the translator said. “But is not Hong Kong the world’s largest stock market?”

There was a nervous silence in the room, as the Americans looked at one another in search of an answer. Finally, Markowitz raised his voice. “No sir, Hong Kong is a formidable market, but it is nowhere near that of the US in size or scope at the moment.” The economic reform leader nodded his head that he understood, and the meeting continued. However, there was a clear change in the attention level.

That is how it was during the early days of the capital markets experiment. The education curve was sweeping, and information was being exchanged with China’s decision makers on a regular basis. Not long after that meeting with the economic reform leader, the first American listing from China was being readied for market. It would be the first of a long line of listings, one that would culminate in the largest IPO offerings ever.

At this later stage in the capital markets experiment, China’s financial leaders are as savvy as any when it comes to the finer points of the US arena. And, that small group of capital markets pioneers that made their way to Beijing back in 1992 has been replaced by a legion of new marketing teams. However, as the education process continues to deepen the general theme remains the same as the relationship that started back in the days of the Markowitz meeting: it is never too late to list.