CLSA’s Five-Year Plan Shows Communist China Is in Charge

Views Of the CLSA Hong Kong Office

Photographer: Anthony Kwan/Bloomberg

Before CLSA Ltd. was acquired in 2013, the Hong Kong brokerage’s research division issued a warning to investors in Chinese financial companies: beware of “high-frequency interference” from the Communist Party.

Nearly a decade on, there’s no better example of how Chinese government control can transform a financial firm than CLSA itself.

The latest case in point: CLSA executives have for the first time been ordered by their bosses at state-owned Citic Securities Ltd. to participate in China’s five-year planning process, a ritual that Communist Party leaders have used to guide the nation’s economy since the 1950s, people familiar with the matter said. Major state-owned enterprises are required to submit five-year plans to the government, and CLSA’s outlook will now feed into Citic’s report to Beijing, which is unveiling a new road map in October, one of the people said.

The diktat adds to a series of steps by Citic to overhaul CLSA, a Hong Kong icon that’s long been known for its independent-minded research and raucous investor conferences. Some observers have portrayed the moves as a financial-industry microcosm of the Chinese government’s broader clampdown on the former British colony.

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Citic’s leaders have argued that the changes at CLSA are needed to improve discipline and coordination on everything from hiring to deal making and risk management. Yet the upheaval has also contributed to a steady exodus of senior talent and made it more difficult for the firm to retain even recently hired investment bankers from international competitors.

After CLSA Chief Executive Officer Rick Gould left in August, just a handful of division heads who pre-date the Citic takeover remain, including Shaun Cochran, now head of research, and Edward Park, who runs institutional equities. Much of the original leadership team, including long-time CEO Jonathan Slone, departed in early 2019 after clashing with Citic Chairman Zhang Youjun.

CITIC Securities (L to R) Chairman Zhang Youjun and Head of Finance Department Huang Yonggang attend their FY2015 Annual Results at  JW Marriott in Admiralty. 24MAR16 SCMP/Edmond So

Zhang Youjun, left, in Hong Kong in 2015.

Photographer: Edmond So/South China Morning Post via Getty Images

“Converting a freewheeling investment banking business into an SOE structure amounts to real value destruction,” said Chen Zhiwu, director of the Asia Global Institute at the University of Hong Kong. “CLSA can’t compete internationally any more and will have to rely on what its parent company feeds to it.”

Read more: China Wants Its Own Goldman Sachs. It Has a Big Headache Instead

A spokeswoman at CLSA declined to comment. Citic Securities didn’t immediately reply to an email seeking a comment.

The five-year plan ordered up from Beijing includes growth and hiring targets, an assessment of risks and opportunities in major markets and an analysis of the competitive landscape, the person familiar said, asking not to be identified discussing internal matters.

Chinese President Xi Jinping and other senior Communist Party leaders are expected to lay out their 2021-2025 strategy for the entire country in October.

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