Faced with heavy fines in the US and now able to tap an improving pool of young mainland graduates, Western banks have stopped hiring the well-connected children of powerful Chinese officials, known as princelings. But the practice is still alive within the murkier reaches of the mainland finance sector, say headhunters.
In the most recent fine imposed on a bank, Credit Suisse last month agreed to pay $47m to avoid prosecution following a vast US government investigation into princeling hires. J.P Morgan, Citi, Goldman Sachs, Morgan Stanley, Deutsche Bank and UBS have also been caught up in the probe, which started in 2013. J.P. Morgan, for example, paid a $264m penalty in 2016.
Finance sector experts we spoke with in the wake of the new Credit Suisse fine are adamant that global banks in Hong Kong (where many China coverage bankers are based) and China itself have cleaned up their acts over the past two years.
“Much stricter controls are now in place around hiring practices, especially around princeling hires, which were relatively common in Hong Kong and China until recently,” says former UBS and Deutsche banker Benjamin Quinlan, now a banking consultant in Hong Kong. “As a result, Western banks now assess potential Asian employees in a similar way to potential clients. They have tighter guidelines about working with 'politically exposed persons', for example.”
International investment banks in Greater China have recently “ramped up their screening processes”, adds Shanghai-based IBD headhunter Jason Tan. “The use of third-party professional background-checking firms is now on the rise. A banker’s family relationships and company directorships and ownerships are being investigated on top of the normal recruitment process.”
US fines aren’t solely responsible for the demise of the princelings in Hong Kong and China. The Chinese government’s ongoing anti-corruption campaign, which has so far punished more than 1.5m Communist Party officials, has made it more difficult for banks to employ people for their political influence.
“Since the corruption crackdown in China, hiring practices have become much stricter,” says Hong Kong finance professional Matt Huang, whose novel Young China Hand is based on his experiences working in mainland finance services. “Hiring, especially for bigger financial institutions, is now based on meritocracy and ability, and not on who you know.”
Some observers say that princeling hiring at global banks in Hong Kong and China would have been phased out, albeit potentially more slowly, regardless of Chinese corruption clampdowns and American fines. Hong Kong and mainland universities are churning out more and better-quality Chinese finance and business graduates than they were just five years ago, giving banks better access to their ideal candidates: Mandarin speakers with finance skills.
“The vast number of talented mainland students now applying for analyst positions at global IBs means banks can now pick from a larger pool of graduates who possess strong language and technical skills,” says Quinlan. “In the past, China teams at the bulge-bracket banks were filled with bankers with strong onshore connections, but they often lacked the technical skills of their colleagues working in sector or product teams.”
Headhunter Tan says market knowledge and communication skills now trump family connections when young mainland graduates apply to global banks. “I attended the graduate recruitment day of an investment bank in Shanghai recently. The bank made 15 candidates mingle with a team of hiring managers and they had to discuss topics like tech bubbles and the IPO market.”
Sill, Tan says princeling hiring remains “rampant” in some second and third-tier local financial institutions in China, especially in the P2P, private-fund, trust-banking, and boutique financial-advisory sectors. “Last year, I worked for a private fund started by an ex-banker who wanted princelings as salespeople. All he needed was a large source of new sales from a few new people – their resume and experience was irrelevant.”
Have a confidential story, tip, or comment you’d like to share? Contact: email@example.com
Image credit: South_agency, Getty