Mark Schwartz is about to become the most senior U.S. banker in Beijing. The incoming vice-chairman and Asia chairman of Goldman Sachs is eschewing the easier climes of Hong Kong, where most of his rivals reside, in what looks a shrewd move for the Wall Street bank. Beijing is under pressure to grow its underdeveloped capital markets, and bring in foreign capital and expertise. Those who can help are likely to be rewarded.
It’s unusual for global banks to place a global head, or even Asia chief, in mainland China. Hong Kong and Singapore offer lower taxes, easier living and less of a language barrier for English speakers. Serving China from Hong Kong hasn’t been an obstacle, since foreign banks in China are restricted in what they can do, and most of the fees associated with Chinese companies are earned offshore.
Now what goes on within China’s borders is becoming more lucrative. The China-related share of investment banking fees doubled to 5.3 per cent between 2008 and 2011, according to Thomson Reuters. A slowing economy gives China’s leaders good reasons to speed up financial liberalization, which would benefit foreign banks. The cap for their investment in Chinese joint ventures was recently raised to 49 per cent from 33 per cent.
Mr. Schwartz isn’t a stranger to Asia. He was Goldman’s regional chairman a decade ago, and its Japan president from 1997 to 2001, after which he ran a fund for George Soros and cofounded a low-carbon investment company. While he may not be a China expert, he can probably offer useful views on how China can avoid Japan’s burst bubble. Goldman will get a powerful post to lobby for more access to growing markets such as bonds and futures.
The U.S. firm could use a boost. While Goldman is the top-ranked bank globally for China equity offerings so far in 2012, it ranks just 29th for listings in the domestic market, below many of its Western rivals. That’s a poor show for a bank that won special treatment in China in the early days by backing some of China’s biggest deals. The diplomatic dividends from posting Mr. Schwartz in Beijing can only help.