Bank of East Asia Plays for Position in the High-Stakes Contest for China
Racine, John, American Banker
Ask western bankers about the hottest prospect in Asia and they will doubtless point to China, with its one-billion-plus population and its thirst for capital.
But while foreigners talk in the future tense, David Li speaks of history. His Hong Kong-based Bank of East Asia entered China early in the century and was the only bank not forced to leave when revolutions drove out businesses not owned by the state.
Even now, as many expect China to open further by the end of the century, Mr. Li, Bank of East Asia's deputy chairman and chief executive, isn't waiting. Since the late 1970s, Bank of East Asia has expanded its China business. More recently, Mr. Li has spent heavily to build a staff that he says will make his company the leading investment bank for China.
Few doubt that Mr. Li's bank will be a player as the world's largest market opens for business. The third-biggest bank in Hong Kong, Bank of East Asia is largely owned by prominent Chinese families in a market where critically important relationships span generations.
"They are, as you Americans say, connected," said a British banker working from Hong Kong. "David Li is known for his aggressiveness, for his willingness to take risks - but not excessive ones."
But the 56-year-old lawyer-turned-banker is also hedging his bets. Bank of East Asia has been aggressively expanding elsewhere in Asia. His joint- venture partners include leading niche players in businesses ranging from leasing to export finance.
The diversification comes as analysts worry that the Hong Kong real estate market - a major business for Bank of East Asia - is due for a sharp decline. Though Mr. Li is bullish on the outlook for the lending market, he is working to create a Fannie Mae-style secondary market where Asian banks can pass off some of the risk to investors.
Q.: What is your outlook for China?
LI: China is in for an era of adjustment from a command economy to a market economy. With that kind of dramatic adjustment, there is bound to be pain.
For the longer run, many people may not be comfortable with that, but we are. Where else can you get that kind of opportunity?
Q.: You have been building your presence on the mainland. When do you expect your operations there to match the 1.8% ROA your bank earned last year?
LI: Although our return from China is not that great, we are investing in the future. I think that before the year 2000, we will have reached our (profit) goals.
We don't see investing in China as dragging on profits, because most of our investment has already been done. It was basically to obtain critical mass, and we think that from now on our return from China should increase, because we have been hiring a lot of new people.
We aim to be the best investment bank in China, and that has required an investment in human resources.
Q.: Yours was the only bank not forced out of China during the Cultural Revolution. Does that give you an advantage?
LI: By having competition, you really sharpen your wits. We have a head start, but we also do our homework.
Q.: It is no secret that your bank is tied into the overseas Chinese network. Where are you expanding?
LI: The Philippines, Thailand, Korea, Malaysia, and other countries.
Our strategy is very simple. We team up with the best partner we can in each of the countries. We team up with the Chinese in each of those countries. We assist them outside their own countries, and they help us with our investments in their country and enterprises. I can call up my colleagues and get the inside story of a deal, and that is extremely valuable.
Q.: You are also involved in some acquisitions, including the purchase of United Chinese Bank in Taiwan. What are your plans?
LI: We feel that sooner rather than later we'll do even more business than today in Taiwan. …