Sick Pigs of Asia

UBS was kicked off a $1 billion bond deal for a joke about Chinese pigs

• UBS and China are in a bitter dispute over an economic briefing which Chinese interpreted as a racial slur.
• On Monday UBS was excluded from advising one of China's biggest state-owned companies on a billion-dollar bond deal.
• Paul Donovan, the chief economist at the bank's wealth management arm, made the comments during an audio briefing published last Wednesday: "Chinese consumer prices rose. This was mainly due to sick pigs. Does this matter? It matters if you are a Chinese pig."
• UBS says the comment was "innocently intended." 

By Will Martin

Paul Donovan, the chief economist at UBS's wealth management arm, has made a costly joke

UBS has been excluded for a billion-dollar bond sale by a Chinese company, the latest fallout from an emotive dispute between the bank and Chinese government over whether a remark by a senior UBS economist was racist.
The row is over a comment about the Chinese pork industry made by Paul Donovan, the chief economist for the UBS wealth management arm, during a daily audio briefing circulated to clients and journalists last week.
In the Wednesday edition of the briefing, Donovan briefly discussed the growing epidemic of swine fever in China, which has impacted the supply of pork in the country, the world's largest consumer of pig products.
He said: "Chinese consumer prices rose. This was mainly due to sick pigs. Does this matter? It matters if you are a Chinese pig. It matters if you like eating pork in China. It does not really matter to the rest of the world."
The comments were interpreted by Chinese as comparing the country's citizens to pigs, and led to an article in China's state-controlled Global Times newspaper accusing Donovan of using "racist language to analyse China's inflation."
China's pork consumption falls as Chinese swine fever spreads.

On Monday, the row appeared to deepen when UBS was excluded from advising one of China's biggest state-owned companies on a substantial bond deal.
China Railway Construction Corporation said it decided not to include UBS in a bond deal, according to Reuters, although it did not give a reason for the snub. 

The Financial Times earlier reported that it was as a result of Donovan's joke.
UBS had previously won a mandate on the sale, which is believed to be worth between $500 million and $1 billion, the FT reported.
UBS declined to comment on the bond sale when approached by Business Insider.
Chinese outrage at the comments led to Mr. Donovan being placed on leave by UBS.
"We confirm that we have asked Paul Donovan to take a leave of absence as we review this matter, to evaluate whether further steps need to be taken," the bank said in a statement Friday.
UBS says that the comments were entirely innocent, and held no derogatory meaning.

Paul Donovan did not respond to a request for comment from Business Insider.
Speaking to the FT, Stephen Matthews, a linguistics professor at the University of Hong Kong said that the perceived insult by Donovan was mostly likely down to a poor translation, or a misreading of a transcript of the comments.
"The perceived insult is derived either from a misreading of the English text by a non-native speaker, or from a poor Chinese translation. Either way, the author is not at fault," he said.

A Freudian slip

UBS Chief Economist Paul Donovan made funny reference to Chinese pig

By Benjamin Robertson, Moxy Ying, and Carrie Hong

UBS Group AG and its top economist apologized for comments published on Wednesday that made reference to a “Chinese pig”.
The Zurich-based bank said the remarks in Paul Donovan’s UBS Morning Audio Comment, were “innocently intended.” 

Donovan was speaking in reference to the rise in Chinese consumer prices that were mainly due to sick pigs. 

“Does this matter?” he said. 

“It matters if you are a Chinese pig. It matters if you like eating pork in China.”
“I made a mistake,” Donovan said in a Bloomberg TV interview with Francine Lacqua on Thursday, saying his remarks were not intended to offend. 

Western companies are seeing relations with China increasingly strained at times, as the trade war with the U.S. escalates tensions. 

Last year, Dolce & Gabbana postponed a runway show in Shanghai after a series of videos featuring a Chinese model awkwardly attempting to eat cannoli, pizza, and other Italian foods with chopsticks caused Chinese outrage. 

Messages by co-founder Stefano Gabbana defending the video provoked a Chinese firestorm.
Donovan’s remarks sparked outrage on social media sites in China, with users saying the comment humiliated Chinese. 

State-run Global Times tweeted “UBS chief global economist Paul Donovan used racist language to analyze China’s inflation in a recent UBS report.”

UBS has had a presence in China longer than most Wall Street firms, and the bank was the first foreign business to receive approval for a majority stake in a local securities venture under the country’s recent financial opening push. 

Last year its China operations reported a net loss of 65.9 million yuan ($9.53 million), according to a company filing.
The bank has also been hiring more senior executives at the joint venture. 

Shen Dehua, most recently investment banking head of HSBC Holdings Plc’s Qianhai securities venture, joined UBS Securities Co. as vice chairman for Asia, people with knowledge of the matter said last month, asking not to be named as the appointment hasn’t been announced. 

The UBS joint venture also hired Eric Zhang from a private equity arm of China Merchants Bank Co. to run its Shanghai office, according to the people.

East Turkestan Executioner

President Trump Could Blacklist China’s Hikvision, a Surveillance Firm
By Ana Swanson and Edward Wong

A worker installing Hikvision surveillance cameras in a park in Beijing in February.

WASHINGTON — The Trump administration is considering limits to a Chinese video surveillance giant’s ability to buy American technology, people familiar with the matter said, the latest attempt to counter Beijing’s global economic ambitions.
The move would effectively place the company, Hikvision, on a United States blacklist.

It also would mark the first time the Trump administration punished a Chinese company for its role in the surveillance and mass detention of Uighurs, a mostly Muslim ethnic minority.
The move is also likely to inflame the tensions that have escalated in President Trump’s renewed trade war with Chinese leaders. 

The president, in the span of two weeks, has raised tariffs on $200 billion worth of Chinese goods, threatened to tax all imports and taken steps to cripple the Chinese telecom equipment giant Huawei. China has promised to retaliate against American industries.
Hikvision is one of the world’s largest manufacturers of video surveillance products and is central to China’s ambitions to be the top global exporter of surveillance systems. 

The Commerce Department may require that American companies obtain government approval to supply components to Hikvision, limiting the company’s access to technology that helps power its equipment.
Administration officials could make a final decision in the coming weeks.
The combination of more traditional surveillance equipment with new technologies, like artificial intelligence, speech monitoring and genetic testing, is helping make monitoring networks increasingly effective — and intrusive. 

Hikvision says its products enable their clients to track people around the country by their facial features, body characteristics or gait, or to monitor activity considered unusual by officials, such as people suddenly running or crowds gathering.
China poses an economic, technological and geopolitical threat that cannot be left unchecked. 

The United States has targeted Chinese technology companies like Huawei that poses a national security threat given deep ties between the Chinese government and industry and laws that could require Chinese firms to hand over information if asked.
Adding to those concerns are the global human rights implications of China’s extensive surveillance industry, which it increasingly uses to keep tabs on its own citizens. 

The Chinese have used surveillance technology, including facial recognition systems and closed-circuit television cameras, to target the Turkic-speaking Uighurs, who have accused the Chinese government of discriminating against their culture and religion.
China has constructed a police state in the country’s northwest colony of East Turkestan, which is Uighurs' homeland. 

That includes extensive surveillance powered by companies like Hikvision and barbed wire-ringed internment compounds that hold 800,000 to as many as three million Muslims.
China has begun exporting this technology to nations that seek closer surveillance of their citizens, including Ecuador, Zimbabwe, Uzbekistan, Pakistan and the United Arab Emirates.

Since last year, administration officials have debated what to do about China’s attempts to clamp down on the cultural and religious practices of the Uighurs. 

But they have refrained from taking action, in part because some American officials worried a move would derail attempts to win a trade deal with China.
Secretary of State Mike Pompeo said in an interview with Fox News on May 2 that the administration was concerned “that the Chinese are working to put their systems in networks all across the world so they can steal your information and my information.” 

He mentioned the Muslim internment camps, adding, “This is stuff that is reminiscent of the 1930s that present a real challenge to the United States, and this administration is prepared to take this on.”
Since trade talks with Beijing nearly crumbled early this month, the administration has quickly ramped up economic pressure on China. 

It is moving ahead with plans to tax an additional $300 billion in products, and announced a sweeping executive order cutting off Huawei from purchasing the American software and semiconductors it needs to make its products. 

While American companies can try to obtain a license to continue doing business with Huawei, firms like Google are making plans to curtail the products and services that they supply.
The administration is also attempting to prosecute a top Huawei executive, Meng Wanzhou, who faces criminal charges in the United States and is under house arrest in Canada, where she awaits a court decision on extradition.

The Trump administration is considering adding Hikvision to an “entity list” that could limit its ability to buy American technology.

The measure against Hikvision would operate similarly to Huawei’s license requirement.
The Commerce Department would place it on an “entity list,” which requires designated foreign companies and American companies to get United States government approval before they do business with one another.
“Taking this step would be a tangible signal to both U.S. and foreign companies that the U.S. government is looking carefully at what is happening in East Turkestan and is willing to take action in response,” said Jessica Batke, a former State Department official who has done research in Xinjiang and testified before Congress on the issue.
“At the same time, however, the ongoing trade war perhaps undercuts the perception that this is coming from a place of purely human rights concerns.”
The Commerce Department and the White House declined to comment.
Hikvision is little known in the United States, but the company supplies large parts of China’s extensive surveillance system. 
The company’s products include traffic cameras, thermal cameras and unmanned aerial vehicles, and they now allow Chinese security agencies to monitor railway stations, roads and other sites.
It is not immediately clear what effect a United States ban would have on Hikvision’s business.
The company appears to source just a small portion of its components from the United States, and any such ban could speed its efforts to switch to Chinese suppliers.
But Hikvision does have a growing international presence, and its executives have warned in the past about the potential for rising anti-China sentiment in the United States to affect its operations.
The company says it has more than 34,000 global employees and dozens of divisions worldwide, and it has supplied products to the Beijing Olympics, the Brazilian World Cup and the Linate Airport in Milan.
It has tried to expand into North America in recent years, employing hundreds of workers in the United States and Canada, setting up offices in California and building a North American research and development team headquartered in Montreal.
Members of Congress from both parties have called on the administration to impose sanctions on companies involved in aiding China’s persecution of Muslims, including Hikvision. 
In an August 2018 letter, legislators also urged the Commerce Department to strengthen its controls over technology exported to these companies, and called on the government to increase disclosure requirements for publicly traded companies that might be complicit in human rights abuses.
Hikvision and Dahua, another company cited by lawmakers, are both listed on the Shenzhen stock exchange.
MSCI, one of the largest index providers in the United States, added Hikvision to its benchmark emerging markets index last year.
UBS and J. P. Morgan are among the company’s top 10 shareholders, according to Hikvision.
Representative Adam B. Schiff, Democrat of California, said in an interview that the House Intelligence Committee, which he leads, could scrutinize more closely American companies that are investing in or partnering with Chinese firms that are building up the Chinese surveillance state.
Congress and the administration have responded with other measures that may clamp down on Hikvision’s business.
Congress included a provision in its 2019 military spending authorization bill that banned federal agencies from using Chinese video surveillance products made by Hikvision or Dahua.
The Trump administration is also considering imposing sanctions on specific Chinese officials known to play critical roles in the surveillance and detention system in East Turkestan.
These sanctions would be imposed under the Global Magnitsky Act.
The highest-ranking official being considered for this type of targeted sanction is Chen Quanguo, a member of the party’s Politburo and party chief of East Turkestan since August 2016.
The State Department and White House National Security Council support imposing the sanctions, but officials at the Treasury Department have pushed back, citing a desire not to upset the trade talks, even though those have bogged down.
Pro-China Treasury Secretary Steven Mnuchin has advocated maintaining strong business ties with China.
The Commerce Department is also working on new restrictions on the types of potentially sensitive American technology that can be exported to foreign businesses, which are likely to touch on artificial intelligence and 5G abilities.

Swiss Bank Discourages China Travel After Banker Is Kept in Beijing

By Keith Bradsher

An advertisement for the Swiss banking giant UBS in Hong Kong last year.
UBS, the Swiss banking giant, has asked dozens of its wealth managers to check with their bosses before making any trips to mainland China in the coming days, after one of the bank’s advisers to wealthy Chinese clients was prevented last week from flying home to Singapore from Beijing.
The incident is the latest sign of the Chinese government’s growing assertiveness in preventing foreign citizens from leaving the country in connection with investigations.
Swiss banks occupy a difficult niche in China. 

They are widely known for protecting clients’ secrecy, although the United States government has been chipping away at Switzerland’s stringent regulations. 

Singapore also has strict bank secrecy laws, and has become a popular place for many Asians to park their money beyond the easy scrutiny of tax investigators and the police.
Preventing a Swiss bank manager from leaving China until she speaks to the authorities could represent a new challenge to banking secrecy.
Xi Jinping has embarked on an extensive anticorruption campaign in the six years since he became China’s leader as the general secretary of the Chinese Communist Party. 

The campaign has also been used to enforce political loyalty to him.
A growing number of multinational companies have begun reviewing and sometimes tightening their travel policies on mainland China. 

Some of these have been victims of Chinese industrial espionage or trade violations, such as dumping or export subsidies.
“As the crackdown has intensified we’ve seen more frequent cases where foreign firms introduce temporary, precautionary restrictions for a specific reason — usually involving the possibility of staff detention in connection with investigations,” said Andrew Gilholm, a Shanghai-based analyst with Control Risks, a global consulting company.
The Chinese government has also prevented the departure of family members of people living in the United States. 

That has become a popular way to put pressure on overseas targets of investigations for them to return to China even when Beijing does not have enough evidence to extradite them.
The UBS client adviser, a Singaporean woman, tried to check in for her flight at Beijing International Airport last Friday, only for the airline counter employee to give her a phone number to call instead of her boarding pass, said a person with detailed knowledge of the case who insisted on anonymity because of the legal issues involved.

When the woman called the number, she was told that the authorities in another Chinese city wanted to talk to her this week, the person said. 

The woman returned to her Beijing hotel, moved about the city without difficulty over the weekend, and was planning to fly to the other Chinese city early this week, the person said.
The woman was not told that either she or UBS was under investigation, the person said. 

The names of the UBS adviser and her Chinese clients have not been disclosed.
The travel warning to the bank’s wealth managers covers 50 to 100 people, mostly based in Hong Kong or Singapore, but is not an actual travel ban. 

Some of them are continuing to make trips to mainland China this week after checking with their superiors, so as to keep appointments made previously, the person said.
The bank’s investment banking, asset management and back-office operations have not been covered by the travel advisory.
The travel restriction on the woman and UBS’s response were first reported on Sunday by Bloomberg.
Big American financial institutions like Bank of America Merrill Lynch and Goldman Sachs continued to allow their employees to come and go from mainland China on Monday without travel restrictions.
The United States issued a travel advisory in January cautioning Americans traveling to China — particularly if they were born there and had become naturalized American citizens — that the Chinese government might not allow them to leave if it wanted to put pressure on them or their family members or employer.

Wall Street's China Wake-Up Call

By Nisha Gopalan  

Wall Street, listen up.
Frustrated with its Chinese partner, JP Morgan is in talks to sell its stake in their investment banking venture, just days after it emerged that Goldman Sachs's Beijing-based Asia Pacific chairman, Mark Schwartz, is retiring from the firm.
A Chinese investment banking presence, once highly coveted, has lost its appeal for foreign institutions. 

Ventures have failed to deliver on the growth promised by an increase in companies raising capital in the nation's bond and stock markets, which now rank among the world's three biggest.
JPMorgan's decision to sell is a sign the bank is rethinking its China strategy amid dissatisfaction over this lack of progress. 

It's a lead that other Western banks would do well to follow.
Overseas institutions have made little headway since China opened the market more than two decades ago, with local brokerages continuing to dominate. 

UBS, last year's top earner among Western banks, ranked No. 95 last year, earning a paltry net income of 296 million yuan ($44 million). 

That's 2 percent of the profit of Citic Securities, China's largest brokerage, based on figures from the Securities Association of China.

Small Fry
Foreign investment banks remain bit players in China

Even among foreign entrants, JPMorgan's performance has been underwhelming. 

Its six-year-old venture, JPMorgan First Capital Securities, generated 156 million yuan of revenue in the first half of this year, less than a third of what Citigroup’s Citi Orient Securities pulled in.
JPMorgan is in talks to sell its one-third stake to local partner First Capital Securities and aims to set up a new venture where it can exercise more control. 

While China restricts foreign banks to minority stakes, UBS and Goldman have secured management control over their ventures and also gained licenses to trade stocks and bonds, where the real money is made in China's brokerage industry. 

HSBC is also seeking regulatory approval for majority control of a venture established in the free-trade zone of Qianhai, close to Hong Kong, this year.
That doesn't mean it will be easy. 

JPMorgan is following a path already trodden by Morgan Stanley, the first Wall Street bank to establish a Chinese venture. 

In the mid-1990s, Morgan Stanley helped set up China International Capital Corp. 

It exited CICC in 2010 after being refused permission to take a controlling stake. 

Morgan Stanley Huaxin, set up the following year, had net income of 30 million yuan in 2015.
Far from achieving dominance in China's capital markets, foreign investment banks are starting to feel the pressure from Chinese rivals moving offshore. 

Mainland securities firms are increasingly encroaching across the border into Hong Kong, where many of the biggest Chinese companies choose to go public. 

Meanwhile, overseas brokerages have made even less of an impact in bond sales in mainland China.

Shut Out
No overseas bank ranks among China's top 10 domestic bond underwriters based on volume of deals

It's telling that Goldman Sachs was the only Western investment bank to base its regional chief in Beijing apart from Morgan Stanley, whose Wei Christianson is co-CEO for Asia Pacific. 

Schwartz's replacement is unlikely to be stationed in the Chinese capital.
Hong Kong is the favored regional base for investment bank heads in Asia. 

As the mainland market continues to disappoint, the semi-autonomous Chinese city looks set to retain that status. 

It remains an important source of Asian investment banking revenues, even if Chinese underwriters are grabbing a bigger slice of the business. 

Another important service, helping Chinese firms buy overseas assets, can also be easily performed from Hong Kong.
China's investment banking market has been running largely on promise for more than two decades. It's about time for Western banks to rethink their strategies. 

Without the ability to take full control of a Sino-foreign venture, it may make more sense to exit. JPMorgan gives other banks plenty to ponder.

China limits foreign ownership of mainland securities firms to 49 percent, though HSBC may be able to skirt this regulation by virtue of its Hong Kong-incorporated unit. 

That avenue is closed to U.S. and European banks.