Recruiting in China

By Yuan Zhaohui, Li Liming

The Agricultural Bank of China (ABC) has plans to become a commercial banking group and seperate its policy-oriented agricultural financing services from its main operations, according to sources.

Sources familiar with the Bank's reform plan said it would be splitting its services into agriculture and non-agriculture, with both having independent managements.

Sources close to the reform plan said it received preliminary approval before the Spring Festival but would ultimately need approval from China's two highest legislative conventions in March.

Meanwhile, lawmakers are still ironing out differences over the splitting of commercial and policy functions within the bank.

Scheme Gradually Unveiled
At a national financial conference held one year ago, the fundamental priorities of ABC's reforms were set as: to deal with the "three agricultural problems", namely, rural areas, farmers and agriculture; to introduce overall structural reforms; to operate in a commercial mode; and go public when appropriate.

According to a senior official who was engaged in drafting the reform, the ABC would be turned into a banking group. He added its subsidiaries would include a commercially operated holding company to be named Agricultural Bank of China Company Limited and another institution focusing on agricultural and farmers' needs in the rural areas.

The source said under this framework, the former would be targetting for market listing, while the latter's chance to become publicly listed was still under debate considering that it enjoyed government subsidies.

The agricultural-based services would also be reformed, added the source, saying that agro-financing would be developed in accordance with market economy instead of the government-administered model of the past.

The ABC's 2006 annual report showed that 60% of its branches and 51% of its employees were located in county-level administrative regions, and by the end of 2006, agriculture-related loans and those offered by county-level branches totaled 1.7 trillion yuan--55% of all loans that year.

The ABC's management believed that it was on par with the other three major state-owned banks to compete in the more developed coastal regions. For example, in Suzhou of east China's Jiangsu province, ABC has had more market share and higher profits than the other three.

As the backbone of China's rural banking system, the ABC would require approval from various related agencies before it could implement the reform scheme, including the Ministry of Finance (MoF), its former investor; the central bank, the coordinator of state bank reform; the China Banking Regulatory Commission (CBRC); the National Development and Reform Commission (NDRC), the Ministry of Agriculture (MoA), and the Central Huijin, which would inject 40 billion yuan into the ABC.

A source close to regulators said the above agencies had given preliminary approval to the scheme before the Spring Festival, and that it would be publicized if passed by the two highest legislative conventions in March--the National People's Congress and the Chinese People's Political Consultative Conference.

After all the Efforts
When he visited Gansu province in late November last year, the Bank's president Xing Junbo noted that it was their obligation to support agricultural issues. By October, the Bank had already established "trial bases for agricultural banking services" in seven provinces, including Gansu and Sichuan.

Chen Xiwen, head of China's rural work office, said recently Chinese banking institutions were focusing more on the urban areas. He stressed the needs for ABC to have a special mission in developing rural areas.

However, commercial banks could not ignore profits, he said, as the ABC needed to maintain solid performance in order to satisfy its shareholders after the reform. He added the government should provide preferential policies for ABC in view of the demands placed on the bank to promote agriculture.

Early in mid 2007, the Central Huijin had decided to invest 40 billion dollars in the Bank, but to wait for the latter's reform scheme to be publicized before going ahead with it. In the first half of 2007, regulatory bodies, including the central bank, the NDRC, the MoF, the CBRC launched an investigation into the reform and wrote research reports to serve as the basis for reforms.

After resigning from the central bank and being appointed as president of Agricultural Bank last July, Xiang Junbo shifted the Bank's first priority to jumpstarting reforms as soon as possible. Late last year, the central bank president Zhou Xiaochuan revealed that the Bank's reforms had entered a decisive phase. As rumors about the reform spread, Bank spokesman Zhou Qingyu replied on February 3rd that the scheme was still being studied.

Based on the experiences of the other three state-owned banks, which have already been reformed into holding companies, if the scheme was approved by the two sessions, ABC would be able to restructure its financial mechanism, introduce the shareholding system and strategic investment, and go public.

Sources said the bank had employed Central Huijin, CITI Securities and two auditing teams to prepare for its domestic IPO; while Morgan Stanley had been shooting to work on its overseas IPO.

Disagreement Remains
Sources said disagreements remained, mainly on how to ensure both commercial operations and support for agriculture.

To better serve agricultural issues, the banks worked out the "Implementation Scheme of Serving the Three Agricultural Problems" last year. According to that scheme, funds raised by county-level branches would mainly be used for agricultural purposes and economic development of the county; with main services covering agricultural production, small and medium rural companies, modern agriculture, infrastructure of rural areas, and development of small towns.

The above-mentioned senior official voiced his concern, saying, "whether there will be risks after a separate agricultural service is established remains an unsolved question."

There have been relatively few customers in rural branches. In recent years, with many branches having focused on deposits, debt collection, and intermediary services, their credit management teams have been dismissed, leaving most of them simply "deposit institutions".

"It's still not clear how the agricultural service will operate," said the above source. In their opinion, wholesale services may be an option, as "there are already many grassroots organizations, such as rural credit cooperatives, small banks at the village and town level, and micro-credit companies. The bank could provide them wholesale loans and let them do the job instead."

"The biggest problem lies in strategy rather than management," said an official of one supervising agency, adding that even if the decision makers agreed on the scheme, the contradiction between agricultural issues and commercial operations persisted. Its goal of "serving the three agricultural problems" might lead to losses, making the Bank a burden for the government.

By Geoff Dyer in Shanghai

The million-dollar bonus has arrived in China's financial services industry as local firms, buoyed by the boom in the country's markets, compete to hire from a small pool of experienced staff.

Fierce competition has forced companies to start offering Wall Street-type compensation, especially in the fund management industry, according to industry executives, headhunters and consultants.

The surge in compensation underlines the dramatic resurgence of China's securities and asset management companies, many of which were making large losses three years ago, just as several Wall Street firms are running into serious problems. Executives report a big rise in CVs received from US-based professionals with a China connection.

"There were several bonuses over a million dollars last year," said Peter Alexander, head of fund management consultancy Z-Ben Advisors. "Retaining assets is no longer the top priority for the funds industry, it is getting and retaining good people."

Although a small group of well-known dealmakers has been paid large compensation packages over the last decade, the seven-figure bonus is relatively new for most of China's financial sector. The surge has been dramatic in the fund management industry, which has seen an explosion in assets under management from $40bn (€27bn, £20.5bn) at the start of 2005 to $450bn by the end of 2007, the result of rising share prices and massive inflows of retail money.

"I personally know of at least half a dozen managers who made more than a million dollars," said an executive at a Shanghai-based fund management firm who asked not to be named.

China has some 60 approved asset management companies, half of which are joint ventures or have foreign shareholders. Leading firms include Harvest Fund Management, in which Deutsche Bank has a 30 per cent stake, Invesco Great Wall, a joint venture, and China Asset Management, owned by Citic Securities.

The chairman of the Bank of East Asia has bowed to public pressure and resigned from Hong Kong’s top policy-making body.

Bank of East Asia chairman David Li has bowed to mounting public pressure over insider dealing-related charges and resigned from Hong Kong’s cabinet Exco (executive council).

Exco advises the chief executive on policy. Li's resignation comes two weeks after agreeing to pay the US Securities and Exchange Commission (SEC) a fine of $8.1 million to settle insider dealing-related charges, though, as is usual with these cases, Li has neither admitted nor denied the charges.

Hong Kong’s chief executive, Donald Tsang, said in a statement announcing the resignation that Li, “regretted that the matter had caused public concern and thus wished to resign from the council”. Tsang said he had asked Li to reconsider his resignation, adding, “I will miss him greatly and hope that he will continue to serve Hong Kong in other areas.”

Shareholder rights activist and editor of webb-site.com, David Webb, who has played a prominent role in drawing attention to the issue, told FinanceAsia: "It’s a good first step but I think the chief executive should have taken the initiative rather than resist his resignation.”

Li’s resignation is a setback for Tsang. It’s the first resignation from his Exco since taking over from Tung Chee Wah in 2005. Li is a close friend of Tsang’s and an important politically ally, having run Tsang’s election campaign in both 2005 and 2007.

The reputational blow to Li is immense since he heads a highly influential family in Hong Kong and sits on the boards of numerous listed companies in Hong Kong and abroad. He is also on a number of important government advisory committees. Li was knighted by the Queen of England in 2005 for services to British education, though he gave up his British citizenship to join Exco that same year.

The SEC charges related to the leaking of insider information about News Corporation’s takeover bid for Dow Jones. The SEC says that Li, who was a Dow Jones board member, leaked information of the takeover before it became public to his friend and business partner Michael Leung, who made a profit of $8.1 million after trading on this information. Leung, his son-in law KK Wong, whose Merrill Lynch account was used to buy the shares, and Leung's daughter Charlotte, who is married to KK Wong, have also agreed to settle with the SEC and give up their trading profits.

The SEC civil complaint states that Li “knew or was reckless in not knowing” both that he had passed non-public information to Leung, and that Leung would try to profit from this information.

Li said in his resignation statement that the public discussion following his agreement to settle with the SEC, “is now becoming an increasing distraction to the chief executive and the executive council”. He said that under the terms of his agreement with the SEC he was unable to respond to questions from the public or the media and this had put pressure on the chief executive and other Exco councillors.

“It would be highly unfair to the chief executive and my fellow executive councillors for me to allow the current situation to continue,” he added.

Li who represents the financial services sector in the legislative council (Legco) said he intended to continue with his duties as a legislative councillor. But he may find that he will come under pressure to resign from that body as well.

“The focus should shift to the legislative council. It is time for the banks to select someone more appropriate to represent them and for David Li to resign from that position,” says Webb.

Rumours of the SEC settlement surfaced in January, but were denied by Li. Final agreement to the terms of the settlement appears to have been stretched out so that the eventual announcement occurred on February 6 when local newspapers had stopped publishing for the Chinese New Year holiday.

When the newspapers resumed publishing, the Li story was kept off the front pages by a scandal involving the publication of hundreds of nude pictures of Hong Kong starlets on the internet which has transfixed the territory for the past fortnight.

However, the Li affair was kept alive by Webb who polled members of his website on the issue. Out of the 1,200 participants in the poll, 93.4% voted that Li should resign from Exco, 89.4% that he should step down from Legco, and 67% that he should resign as chairman and CEO of Bank of East Asia.

Webb sent the poll results together with an open letter to Donald Tsang. “If you wish your administration to have the respect of the public and international community, then you must require Mr Li to step down from the executive council without further delay. Good governance demands it. Please put Hong Kong's reputation as an international financial centre ahead of your personal friendship. We cannot allow a perception that the elite can buy their way out of allegations (at a cost greater than most citizens will earn in a lifetime) and retain public office,” he wrote.

Li has been a Legco member for the financial services functional constituency since it was set up in 1985. During that period he has been challenged once – in 2000 – though he won with a wide majority.

The feeling among some commentators is that if Li stays in Legco and ignores the views of the public then this simply undermines the lack of accountability inherent in functional constituencies.

In light of the SEC settlement, the Hong Kong Monetary Authority (HKMA), as part of its statutory oversight of the banking industry, is obliged to consider whether Li, who is both chairman and CEO of BEA, is a fit and proper person to continue in these roles under its guidelines. Standards for banking executives are considerably higher than for ordinary company directors as public money is involved.

The HKMA has so far remained silent on the issue, saying that the banking ordinance prevents it from commenting on individual cases.

It is possible that the HKMA may ask the bank to find another CEO. Although the BEA board has come out in support of Li, it could be that the bank may use the occasion to address the issue of succession since Li will be 69 in March.

In addition, the Li family is thought to have only about 15% of the bank’s shares though it is not clear how these will be voted given the disparate nature of the family. The family’s hold on the bank is fairly tenuous as was demonstrated some years ago when a general mandate to issue new shares without a rights issue was voted down by institutional shareholders. In recent years it has been regarded as a possible takeover target, though it took on significant minority shareholders last year with BOC (HK) acquiring a 4.9% stake and Spanish Bank La Caixa an 8.9% stake.

Li sits on a number of prominent government committees. These include the HKSAR Banking Advisory Committee, which advises the chief executive on banking and financial issues. Li, possibly because he is the legislative member for the sector, has been a member of this committee since 1981 while others have served no more than the normal six years. His current term is due to end in December this year. Rather than asking him to resign, the HKMA may take the more diplomatic approach of not reappointing him. Indeed this is likely to be the route that other organisations of which is a member will also take if they feel it is inappropriate for him to remain with their organisation.

Li is also on the HKSAR Land Fund Advisory Committee and the Mandatory Provident Fund Schemes Authority. He is chairman of the Chinese Banks Association, pro-chancellor of the University of Hong Kong and chairman of the Hong Kong Management Association.

He is either a director or non-executive director of the following listed companies: Cable & Wireless HKT, Hong Kong and China Gas, China Merchants China Direct Investments, China Overseas Land & Investment, COSCO Pacific, FPB Bank Holding Company, San Miguel Brewery, Sime Derby, SCMP Group, Vitasoy International and Henderson Cyber.

About 20 percent of university students in China, who graduated in 2007, have so far failed to find jobs, according to a blue paper issued by the Chinese Academy of Social Sciences.

Nearly five million university students graduated in 2007, but one million of them have still not found jobs, according to the blue paper released earlier this month.

"This is not because China's policy to expand university enrollment has resulted in labor supply outweighing demand on the labor market," Yang Weiguo, associate professor of Beijing-based Renmin University said.

"In fact, the gap between supply and demand reaches 13 to 14 million people annually in recent years," said Yang, also the deputy director of the Employment Research Institute of Renmin University.

Only 270,000 students were admitted to study in universities when China resumed its university entrance exams in 1977. Thirty years later, the number of undergraduates and postgraduates surged to 5.7 million and 424,000 respectively.

However, official statistics show only five percent of China's total population have the opportunity to receive higher education,

"One of the reasons for the difficulty in university graduates finding employment is that they are unable to satisfy the needs of employers," he said.

"The other reason is that university graduates are unwilling to go to backward or remote areas, yet are unable to find jobs in metropolises such as Beijing and Shanghai," he said.

He said the universities need to adjust their teaching methods and content quickly to conform to social development and demand.

He also called on the social security, educational and personnel departments to adopt more favorable policies or offer subsidies for university graduates working in relatively backward regions.

The average starting salary for new graduates in 2007 was 1,798 yuan per month ($250), 210 yuan more than that of 2005, a survey conducted by Peking University shows.

The Beijing News reported on Tuesday that the survey on postgraduate employment shows 50 percent of graduates received a starting salary of over 1,500 yuan, with higher salaries for more advanced degrees.

According to the survey, male graduates receive higher salaries than females. The median starting salary for male graduates was 1,500 yuan, while that of female graduates was 1,300 yuan.

Research institutions, foreign-funded companies and government departments offer higher salaries to graduates. Administration management, business management and professional technical work were ranked as the top three fields, in terms of entry-level salaries.

The survey also shows that each graduate submits an average of nine applications when searching for a job, and receives an average of 4.3 interviews and 2.3 offers.

The results of the survey are based on 16,388 questionnaires collected from students at 28 universities and colleges in eastern, central and western China.

China is stepping up its policy support to promote employment, said a circular released on Tuesday on the official government website.

The circular allowed localities to raise the ceiling of the amount of small loans - a policy partly designed to help the unemployed open their own businesses - and lower the threshold for qualified borrowers when necessary.

The preferential tax policies, which reduce or exempt the tax burden on the unemployed and the disabled, should continue to be carried out till the end of this year. New policies would be introduced in 2009.

The government has been taking measures to encourage companies to recruit those who have had difficulty in finding employment. It was also creating more public service jobs.

China has implemented active employment policies since 2002. It has increased the number of the newly employed in cities from 8.4 million in 2002 to 12.04 million people last year.