Thursday 5 November 2009, 12:00. Copyright of CNMI China Market Intelligence.
Reading the paper while enjoying a hot cup of coffee on this cold Shanghai november morning, one article in specific caught my interest. It was a short article on how Morgan Stanley was putting its shares in CICC, China International Capital Corp, the first investment bank in China, up for sale. I was interested specifically because I had previously read much about CICC and how this joint venture, originally between Morgan Stanley and China Construction Bank, was given life. A very interesting book by James McGregor, "One Billion Customers", has an entire chapter on the creation of this juggernaut and more specifically - what went wrong. I highly recommend anyone to read the book but in short: Morgan Stanley was one of the investment banks eyeing the Chinese market when it started opening up for them in the late 1990s. The Chinese government realised they needed to participate with an investment bank of their own, but were hoping for foreign know-how to start things off. They found an eager partner in Morgan Stanley, who were perhaps too eager, as they settled for a 34% share. Their lack of control over the joint venture soon became apparent as CICC was slowly absorbed by the Chinese. Shortly after the son of former Chinese prime minister Zhu Rongji, Zhu Yunlai, became CEO of the company, Morgan Stanley learned to accept the joint venture for what it had become: a Chinese investment bank that makes them some money on the side.

This continued until 2007 when Morgan Stanley decided they had had enough and it was time to cash in and move on. When they tried to sell their share in CICC, however, offers were much lower than expected and the subprime crisis was already knocking on investment bankers' doors. All deals were called off and Morgan Stanley remained heavily invested in CICC, which had been doing fairly good underwriting business.

So, according to my morning paper, Morgan Stanley is ready to try again. They are looking for bids of over US$1 billion. I call to mind the end of the chapter in McGregor's book: "CICC became a portfolio investment from which Morgan Stanley would collect annual dividends and perhaps realize a big gain in the event of a future CICC public listing". Although circumstances differ, I get the feeling that this is the big gain Morgan Stanley has been waiting for. They want out on their expired partnership and in on a new, improved deal, hoping past mistakes will not be repeated. I wish them the best of luck, as making a joint venture with a Chinese partner work for you is a challenge indeed.