That is a lesson worth close examination by Beijing in the current environment where there is a suspicion about China’s cashed-up sovereign wealth funds (SWFs) and state-owned enterprises (SOEs). The rejection of the bid from China National Offshore Oil Cooperation (CNOOC) for Unocal by the U.S. Congress and the political sensitivity surrounding state-owned Chinalco’s courtship for a key stake in Rio Tinto highlighted concerns in many countries that China’s sovereign wealth funds and state-owned enterprises are simply pawns for the Chinese government to achieve wider political and strategic objectives.
The Chinese government is both conscious of the cautions about its recent global shopping spree and also anxious to improve the corporate governance structures and efficiency of Chinese SOEs and SWFs. Beijing has already undertaken a range of reform measures such as appointing foreign directors to the boards of SOEs, clarifying the muddled relationship between the party and SOE management, and hiring external money managers to invest China’s vast foreign reserves. One of the most notable examples is that of John Thornton, former Chairman of Goldman Sachs, who was appointed to the board of directors of one of China’s largest telecommunication services providers, Netcom. Despite these reform measures, Beijing still retains a tight grip over SWFs and large SOEs in strategic sectors.
If the Singaporean lesson can be replicated in China by appointing a foreign executive to head one of China’s SWFs, this would be a significant leap forward for China’s ‘going abroad’ strategy. A foreign chief executive would be in a much stronger position to convince the international community of China’s intention to use its financial muscles responsibly. It would also go a long way to infuse a large degree of independence into the management of these SWFs and make good on China’s intention to embrace transparency and market principles. A more daring suggestion would be to appoint someone such as former Australian Treasurer Peter Costello or former US Secretary of Treasury Hank Paulson to manage China’s SWFs or at least to an advisory position of influence. This would go a long way to ease the jittering nerves of potential recipients of Chinese investment.
It is clear that the appointment of a foreign chief executive would not be a wonder drug that would cure the western anxieties over China’s SWFs and SOEs overnight, or resolve the issue of independence of the board from political interference. But it could be an important first step in China’s ’Going Abroad’ strategy.
Peter – before writing a piece extolling the virtues of Singapore’s appointment of a foreign chief executive to head its SWF, you may want to check the latest facts.
Goodyear and Temasek parted ways last month because of “unresolvable strategic differences”, whatever that means.
Which rather shows that big-ticket international CEOs and SWFs don’t sit together quite so easily.
Although Peter Yuan Cai’s suggestion to appoint foreigners to manage China’s SWFs and SOEs may be uncomfortable for most Chinese including their political leaders, the idea is worth considering, especially for the SWFs to have some advisors or board members with real power to manage the funds.
The government can set some guidelines and then to leave the management to the board with internationally competitive board members and management teams. It is a form of introducing foreign human capitals.
Um, Chip is gone. Might want to look into it …
Since Chip Goodyear and Temasek have already parted ways in July after differences over strategic direction, it would seem likely that China may not be so impressed by this particular aspect of Singaporean mangement.
My apologies for not having exercised due diligence on the latest development between Goodyear and Temasek; however, my argument still stands that appointing a foreign CEO to manage China’s SWFs or SOEs would be a very positive move for the Chinese “Going Abroad” strategy.
As suggested by Greg Earl of the Australian Financial Review, the recent debate over Chinalco’s investment in Rio Tinto highlights the need for China to be more sophisticated about its foreign investment by better explaining the intentions and management of both state owned companies, state funds and the state controlled lenders. A media savvy foreign CEO would be in a much stronger position to present China’s case for state investment and soothe public anxiety. This would be a huge public relations move for Beijing
Beijing can even draw lessons from home. The former American CEO of Lenovo played a part in increasing the international profile of this Chinese computer manufacturer and his appointment was widely regarded by the business community as testimony to Lenovo’s commitment to become a serious international player.
Going back a bit further in history, both the Qing and Republican governments employed a succession of foreigners, most notably Sir Robert Hart to manage the crucial Maritime Custom Services that was responsible for a considerable part of state revenue. It was widely praised as a model of efficiency in the otherwise corrupt Chinese civil service and Sir Hart was much admired and often engaged by the Chinese government in negotiations with foreign governments.
I’m sorry, Peter. Your argument has been demolished. The fact that Chip Goodyear and Temasek parted ways is NOT immaterial to your op-ed. Your due dilligence should extend to the events that followed after the fact, namely: that both Temaske and the Singapore government sought ways to downplay Chip’s departure not by giving PR spins, but by going back to being non-transparent. Can a foreigner be employed still for Temasek and Chinese SWFs in the future? Of course! Who this person(s) will be will say a lot. Whether this person will be cowed into being submissive to the power-that-be is the real question! Major corporations have already given in to demands by the Chinese in order to operate in China (consider Google, major broadcasters, etc.) and much of US banking/finance is already underwritten by Chinese bonds/outright…
So what is the real point of your paper?
I think maybe a gradual process would be better, in the sense that to have some non-citizens to be on the board of some SWFs, or even a deputy chair of the board role to start with. They may not necessarily play the CEO role for a while, but their skills and expertise can be employed and tested.
To have successful arrangements to take advantages of the international pool of talents, there needs a process for confidence building for both sides including the host government and the key international candidates.
In that process, the host country needs to develop some transparent and practical principles governing the operations of those funds and their managers. It also needs to have in place the most appropriate remuneration incentives to ensure the funds are properly managed.
So I think that Peter’s basic idea may still be a good one and should be explored by China rigorously, although Terence obviously has a point that should not be discounted.