Cablegate: China Merchants Bank Sees U.S. Financial Sector Recovery In

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FM AMCONSUL GUANGZHOU
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E.O. 12958: N/A
TAGS: EFIN CH TW
SUBJECT: China Merchants Bank Sees U.S. Financial Sector Recovery in
Second Half of 2009

(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.

1. (SBU) Summary: The CEO of China Merchants Bank, the country's
sixth largest lender, predicts the U.S. financial sector will
recover from the sub-prime mortgage crisis by the second half of
next year and this will be good news for China. CEO Ma Weihua's
bank is opening a new branch in New York and looks to expand in
Europe and eventually Taiwan. He has discussed expansion in Taiwan
with politicians from both the Pan-Blue and Pan-Green camps and a
senior official from Taiwan's Financial Supervisory Commission
expressed support, but concluded that as yet it would be easier for
a Taiwan Bank to open on the mainland than the other way around.
China Merchants relies heavily on staff from Taiwan in its credit
card business and Ma sees expansion of consumer credit as key to
China's economic goal of expanding domestic consumption. End
summary.

Sub-Prime Crisis - Recovery and Blame
-------------------------------------

2. (SBU) The U.S. financial sector will see recovery from the
sub-prime mortgage crisis in the second half of 2009 -- according to
the politically well-connected and economically savvy China
Merchants Bank CEO and President Ma Weihua -- and this would be good
news for China. Ma told the Consul General that financial
institutions will continue to feel the effects of crisis in the
first half as firms report their results from 2008. He blamed the
crisis on three categories of institutions -- investment banks,
credit rating companies and regulators, singling out the Federal
Reserve for special criticism. He said the investment banks should
have limited their exposure to mortgage-backed assets. He faulted
credit rating agencies for lacking objectivity ahead of the crisis.
As for the Fed, he said that had it acted more quickly, as it had in
the Bear Stearns situation, the downturn would not have been as
bad.

Expanding Internationally and Across the Strait
--------------------------------------------- --

3. (SBU) Ma is traveling to the New York soon to celebrate the
opening of a new China Merchants branch there. He expressed
particular pride in Treasury's approval of the branch, noting that
the U.S. had the most stringent laws and regulations in place for
banks of any sort, domestic or international. The bank is also
working on setting up a branch in London; he had spoken with Gordon
Brown in Beijing the week before and found the British far too
conservative in their approach to banking, one of the reasons why
London had lost a position of preeminence in financial circles. Ma
confirmed reports that the bank is eager to establish a presence in
Taiwan as well. He told us that he had been to Taiwan several times
and discussed his interest in opening an office there with
politicians from both the Pan-Blue and Pan-Green camps. Ma said
that one Democratic Progressive Party (DPP) legislator had
acknowledged the economic benefits Taiwan could enjoy from expanded
cross-Strait financial exchanges but had explained that the DPP
could not support them for political reasons. Ma noted that he had
met with Taiwan Financial Supervisory Commission Vice Chair Li
Jih-chu several times and that she had expressed her support for
China Merchants expanding its presence in Taiwan.

Following the Path of Taiwan
----------------------------

4. (SBU) Commenting that Taiwan was about 20 years ahead of China in
the development of its financial sector, Ma explained that the
experience of Taiwan banks had informed China Merchants' growth
strategy. He noted in particular that he relied heavily on staff
hired from Taiwan banks for his credit card business. They have
experience growing the credit card market, he explained. He
commented that with so many banks competing for Taiwan's small
market, there is an abundance of expertise on the island. In
addition, he noted that Taiwan bankers were not only familiar with
the West and international banking practices but were also
culturally at home in China.

Raising Consumption and Competitiveness
---------------------------------------

5. (SBU) Ma pointed out that expanding the credit card market in
China would be important to achieving the government's goal of

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increasing domestic consumption -- noting in response to a question
from the Consul General that assisting in growing the domestic
market would be a key part of China Merchants operations. He said
that the Chinese economy needs to move past its reliance on exports;
future growth will come from investment and domestic consumption.
Ma commented that the Chinese government wanted to make local
manufacturing industries more competitive. Measures like the Labor
Contract Law, appreciation of the renminbi and allowing input costs
to rise would help raise local firms to international standards, he
said.

GOLDBERG

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