Exclusive: UBS Committed to China, Sees Opportunities After Credit Suisse Deal (Caixin)
2023-09-28
UBS Group AG is looking to further expand its presence in China, a market that remains important to the company, CEO Sergio Ermotti told Caixin during his first trip to China since the Swiss banking giant took over troubled rival Credit Suisse Group AG in June. “We have been a pioneer [in China] and we want to continue to play a role of a leader here, particularly now — after the acquisition of Credit Suisse, we are definitely moving up a further level in terms of breadth and capabilities that I’m sure will serve us well in China,” he said in an interview with Caixin in Beijing on Monday. During Ermotti’s visit, UBS signed a memorandum of understanding with Industrial and Commercial Bank of China Ltd. (ICBC) (601398.SH +0.65%), one of China’s “Big Four” state-owned banks, to explore cooperation opportunities in fields including asset management, wealth management, investment banking, and corporate banking. “UBS’ global strength together with ICBC’s leading position in China and Asia will put us in a unique position to offer international investors access to China as well as to support Chinese companies and investors wishing to go global,” he said in a press release. Credit Suisse and ICBC already have a mutual fund joint venture — ICBC Credit Suisse Asset Management Co. Ltd. The Swiss bank has a 20% stake in the company which had 1.72 trillion yuan ($247 billion) of assets under management at the end of 2022, according to ICBC data. “Credit Suisse had a very successful and very important joint venture with ICBC that we believe is strategically important, and we are very proud and keen to continue to develop that,” Ermotti told Caixin. “We also look at other areas of expansions, for example, in our capabilities in investment banking. So across the board, there are plenty of opportunities.” Ermotti, who was UBS CEO for nine years until 2020, returned to the position in April, just as the Swiss banking giant started the takeover of Credit Suisse. “My first trip to Asia [since being reappointed] is indeed focused on coming to China, to Beijing, to reach out to our most important stakeholders here — regulators and clients — to update them on our progress in the integration, but also to reiterate our commitment to the Chinese market,” Ermotti said. The acquisition, which was completed in June, had complicated UBS’ expansion in the world’s second-largest economy, as the stakes held by the combined company in certain financial firms in China would have exceeded the regulatory threshold. UBS had to scrap a plan to set up a wholly owned mutual fund management company in China, Caixin previously learned from sources with knowledge of the matter. “We are assessing the best options,” Ermotti said. “Of course, we are not allowed to have [controlling stakes in] two securities operations. So, we need to exactly finalize our plans and we’re thinking about that as we speak. We are very happy with our two asset management operations. And we will focus on the best way forward.” While the Chinese economy may be expanding at a slower pace, and complexities remain in its post-pandemic recovery and geopolitical tensions, investors are not exiting the market, he said. “Of course, the economic situation in China is no longer the one we saw in the last 20 years … But I haven’t heard anybody saying that they want to exit China,” Ermotti said. “It’s just a matter of how fast they want to grow in China, rather than making an exit.”

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Pandemic Spending Put Local Chinese Governments $548 Billion in the Red (Caixin)
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Local governments in China went 4 trillion yuan ($548 billion) into the red during the three-year pandemic, and the central government needs to issue special bonds to help them pay off debts owed to businesses, according to a well-known Chinese economist. Accounts payable to businesses by local governments have mushroomed, hurting the ability of enterprises to invest, said Bai Chongen, dean of the School of Economics and Management at Beijing’s prestigious Tsinghua University, at a fiscal policy forum Thursday in Beijing. In the current discussion of resolving local debt risks, the focus is on whether a bailout will create a moral hazard and the expectation of a central government backstop. Bai said the pandemic was an uncontrollable factor, and decreases in fiscal revenue even as expenses rose were out of the control of local governments. To avoid moral hazard, it is necessary to distinguish which local debts are caused by the pandemic and which reflect the expansion of local spending for governments’ own interests, Bai said. In economics, moral hazard is a situation in which an economic player has an incentive to take on risk because it does not bear the full costs of the risk. The 4 trillion yuan of local debt directly created by the pandemic should be covered by central government borrowing as its costs of issuing special bonds are lower than local governments’ expenses, Bai said. For debt not caused by the pandemic, Bai proposed credit extensions to alleviate local governments’ repayment burdens. To mitigate local fiscal difficulties and debt risks over the long term, the central government should reduce mandated policies that require local government to spend on certain projects, Bai said. For example, in recent years policies to improve school safety, revive the rural economy and restructure public employees’ pension insurance have all increased local governments’ fiscal burden, he said. Overdue payments owed to private businesses, especially smaller ones, have been an issue in China for years. Many local governments racked up arrearages due to pandemic when they conducted testing that cost billions of yuan but didn’t have the money to pay for it. A report by Bank of China Ltd. in 2022 estimated that back payments owed to small and midsize businesses by large companies, local governments and other entities reached at least 6.7 trillion yuan ($104 billion) in 2021. The government has repeatedly launched campaigns to resolve such debts. In an executive meeting Wednesday, the State Council approved a campaign to deal with arrearages, a matter that it said “must be regarded with great importance” as it “concerns companies’ production, operation and expectations for investing, as well as the continued recovery of the economy.” State-owned enterprises must take the lead in repayments, according to a readout of the meeting. The State Council also urged the establishment of a long-term mechanism to effectively deal with the matter.

China’s top political adviser Wang Huning urges support for Xinjiang in education, culture and industry (SCMP)
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Documents show Taiwan working with FBI to prosecute Chinese Americans, intimidate U.S. politicians (Xinhua)
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North Korea says cooperation with Russia ‘natural’, slams South Korea’s Yoon as ‘diplomatic idiot’ (SCMP/Reuters)
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Embassy of Switzerland