Chinese investment banks are becoming bigger players globally as they strive to support mainland businesses overseas, but a skill shortage is holding them back.
China’s investment banking sector currently employs 330,000 people, and this figure is set to increase to 1 million by 2020, according to the China Securities Regulatory Commission's recent blueprint for talent development.
"Investment banks face a talent shortage and this problem will continue for the next few years. The local investment banks, along with city governments, for example the Shanghai Finance Ministry, have been proactive. These institutions have joined forces in visiting the US and UK to recruit top banking professionals," says Jason Tan, director of financial services and banking, PSD Group Shanghai.
The demand from domestic companies for investment banking services has increased, especially outbound direct investment, which is expected to reach US$500bn by 2015, according to recent statistics. Top Chinese investment banks like CICC and BOCI have been active in overseas markets, such as IPO listings in Hong Kong, but their client base comprises mainly of domestic SOEs and private enterprises.
CITIC Securities, for example, has been working with Brazilian investment bank BTG Pactual to facilitate Chinese enterprises' investment in that country. Bankers with international knowledge are needed not only to secure leading roles for Chinese banks in these transactions, but also to establish global sales networks of Chinese equities, debt and futures products. "If these local clients are interested in venturing overseas, then action must be taken immediately to recruit proactively at the banks," says Tan.
There are talent shortages across the board in functions such as "sales and trading of capital-markets products, M&A, algorithmic trading, and risk management, including counterparty risk, market risk, operational risk, compliance, audit and Basel III," says Tan. ECM and DCM professionals are also lacking, adds Stephen He, senior consultant, banking and finance, Kelly Services Shanghai.
In general terms, the domestic investment-banking talent pool lacks experience and a global vision. Relying solely on professionals currently in the local market will not support Chinese banks’ ambition to compete with global firms. The government is trying, therefore, to source talent internationally. Head of domestic investment banks, for example, are dominated by professionals with both a local and global education, but the same is not yet true for execution roles.
Management culture also helps prevent Chinese investment banks becoming more internationally competitive. State-owned banks tend to lack sufficient rewards schemes for managers, and when new incentives are developed, they find it hard to implement them. As a manager of a large Chinese investment bank, who asked not to be named, puts it: "It’s not that we don't have management talent, but rather that we need to learn to use it better."
Tan explains how he thinks Chinese banks should go about strengthening their ranks. "Balance the recruitment drive in China by hiring foreign talent, not just returning Chinese, for jobs at headquarters in China, not just in Hong Kong. Have a real value proposition in China by offering top-quality services to clients. And pitch for international clients against some of the top investment banks globally."