FINANCE: Minsheng Eyes Indonesia, Silicon Valley Meets Shanghai

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Bottom line: Major new moves by Minsheng Investment, SPD Silicon Valley Bank and Ant Financial spotlight Shanghai’s leading role in China’s push to liberalize its financial services sector with more private investment.

Shanghai leads charge into private banking

Three Shanghai banking stories are in the headlines today, spotlighting the leading role the city is playing as China tries to develop a private banking sector. Leading the trio of headlines is the year-old China Minsheng Investment, a major new private equity company backed by the nation’s oldest private bank, which is exploring a major new infrastructure project in Indonesia.

The second story has media reporting that Ant Financial, the finance unit of e-commerce giant Alibaba (NYSE: BABA), will become the biggest tenant in Shanghai’s new tallest building when Shanghai Tower opens for business soon. The final news bit involves Shanghai’s own SPD Bank (Shanghai: 600000), whose joint venture with US-based Silicon Valley Bank has finally received permission to do business in China’s currency, the yuan, 3 years after the venture’s formation.

Each of these stories has a slightly different angle, but all 3 point to the growing role that Shanghai is playing in Beijing’s drive to create a more vibrant financial services sector. Most of China’s largest banks and other financial service companies are state-owned, and are quite slow-moving, lacking in innovation, and lend most of their money to other state-owned companies. Beijing hopes to change that by nurturing a more nimble private financial sector, which is beginning to take shape in China’s traditional financial hub of Shanghai.

Let’s begin with Minsheng Investment, a 50 billion yuan ($7.8 billion) private equity firm set up a year ago by people associated with the nation’s oldest private bank, Minsheng Bank (HKEx: 1988; Shanghai: 600016). (previous post) The latest reports say Minsheng Investment is exploring development of a massive $5 billion yuan industrial park in Indonesia, which would become its first major investment overseas. (Chinese article)

Exploratory Stages

Minsheng Investment’s vice president Chen Guogang disclosed the plan at a forum happening this week in the port city of Dalian, and said the project is still in the exploratory stage. He added the park would focus on production of infrastructure-related items like cement and steel, and dovetails with China’s broader objectives to promote infrastructure investment throughout Asia.

There’s no word on how much money Minsheng would actually put into the project, but I suspect it would provide well under half of the proposed figure, with the rest coming from the Indonesian government, local companies and possibly the newly created, China-led Asian Infrastructure Investment Bank (AIIB). The project looks like an interesting and possibly lucrative first big step outside China for Minsheng. But that said, the political overtones in this case also hint that Minsheng’s future investments may be at least partly motivated by non-commercial factors like policy priorities from Beijing.

Next there’s SPD Bank, whose SPD Silicon Valley Bank joint venture officially began doing business in yuan this week after a mandatory 3 year waiting period. (English article) The joint venture with California-based Silicon Valley Bank was founded with fanfare 3 years ago, with an aim of lending to Chinese high-tech companies. But it immediately ran into a major roadblock due to China’s mandatory 3 year waiting period for all foreign-invested lenders to conduct yuan-based business.

I met with some officials from the joint venture bank a few years ago, and they described their frustration at having to wait so long before doing major local business — a huge cost for any company. There’s been talk for a while that China might shorten or even abandon the 3-year waiting period, and perhaps this latest case and Beijing’s own desire to liberalize the financial sector will finally result in some action soon.

Finally there’s the Ant Financial news, which has the operator of the Alipay electronic payments service setting up its headquarters in Shanghai Tower that will become China’s tallest building when it opens in the Lujiazui Financial District. (English article) Ant’s decision to set up shop in Shanghai is somewhat significant, since its Alibaba sister company is based in the city of Hangzhou more than 100 kilometers away.

According to the latest reports, Ant has already committed to take about half of the space in the new tower, which will become a defining part of Shanghai’s skyline at a height of 632 meters. It’s quite impressive that a company as young as Ant, which was only formally launched about a year ago, could require so much space for its headquarters. But the company is certainly growing fast, and should continue that breakneck growth in its march to become leader of a new generation of private financial service companies.

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