(Bloomberg) -- In a Hong Kong transformed by China’s crackdown on everything from political dissent, to the media and judiciary, picking a new top boss for the financial hub’s stock exchange is proving difficult.
Charles Li announced his intention to quit as head of the Hong Kong Exchanges & Clearing Ltd. more than a year before his contract ended amid strained relations with Chairman Laura Cha, according to people familiar with the matter. Cha was put off by his free-wheeling style, which led him to sometimes not inform the board of important issues at an early stage, said the people, who asked not to be identified discussing private matters.
More than seven months later and days before Li formally steps down on Dec. 31, the committee has yet to settle on a permanent replacement. It’s split between prioritizing a candidate who can operate with confidence in China or one with a strong international background, the people said. Cha, who’s well connected in China and close to Hong Kong leader Carrie Lam, sees the bourse’s role as serving Bejing’s interests and avoiding competition with the mainland’s exchanges, one of the people said.
Li had seemed to thread the needle, credited with both internationalizing the exchange as well as building a bridge to China’s markets. Still, the former JPMorgan Chase & Co. banker was eventually seen as too outspoken and his aggressive -- and failed -- 29.6 billion-pound ($40 billion) bid for the London Stock Exchange dented his standing. He was forced to apologize last year after saying civil unrest in Hong Kong had exposed faults underlying the “one country two systems” framework for its return to Chinese rule. He said he had been misinterpreted.
In an interview with Bloomberg this month, Li said the CEO’s job is all about “steering conflict” both in Hong Kong and on the mainland, but also one that entails taking risks.
His successor at the city’s flagship financial institution will need to contend with an increasingly assertive Beijing while upholding the confidence of global investors at a time when Hong Kong’s status as an international hub is in doubt. The next boss will also need to consider whether to match Li’s style as de-facto spokesman for the financial industry or take a more subdued approach, leaving the city’s most important sector without a cheerleader-in-chief.
Candidates being considered include Liu Che-Ning, co-head of Asia-Pacific banking at HSBC Holdings Plc, as well as the HKEX’s interim CEO and chief operating officer Calvin Tai. Mark Machin, CEO of Canada Pension Plan Investment Board, and Philip Zhai, former JPMorgan Chase & Co. banker, have also been discussed, as has Wilfred Yiu, a former Goldman Sachs Group Inc. banker who joined the exchange as head of markets in 2019, people familiar said.
Liu, Machin, Zhai and Yiu all declined to comment while Tai wasn’t immediately available. Machin and Zhai remain committed to their current jobs, according to the people.
An HKEX spokesman said in an emailed reply that the selection process for the group’s next chief executive is being conducted by the board with “clear communication and transparency” and further announcements will be made when the process concludes. It declined to comment on any “gossip or speculation.”
Dubbed “Mr. China” for linking the bourse closer to the mainland and helping open doors for foreign investors, Li is a tough act to follow. The exchange’s revenue doubled during his tenure and its stock has surged ahead of the broader market, earning him further plaudits.
Part of the schism with Cha stems from Li being publicly credited for the landmark deal connecting trading between Hong Kong and the exchanges of Shanghai and Shenzhen. Li likes to tell the story of how he sketched out the link on a napkin during lunch with the head of the Shanghai Stock Exchange. The Stock Connect enabled investors to buy and sell onshore Chinese stocks and bonds using Hong Kong’s infrastructure, which helped global index providers to include Chinese securities in their gauges, driving hundreds of billions of dollars into the market.
Cha, a former vice chairman of China Securities Regulatory Commission, thinks that Li has been given too much credit for the agreement, which now accounts for 10% of the bourse’s revenue, said the people. As of late, Cha has asserted more control, putting in place checks and balances for senior management, according to one of the people. For example, department heads are now vetted by a board committee as well as by the CEO, another person said.
Li’s resignation has shaken up the senior ranks at HKEX, with several executives exiting. Recent departures include Head of Market Development Li Gang and some of his team, which was responsible for developing new products, said the people. General Counsel Ferheen Mahomed and Head of Human Resources Eva Chau, both were on the management committee, have also left in recent months.
Li’s major setback, however, was the failed attempt to take over the LSE last year following its acquisition of the London Metal Exchange in 2012. That debacle dented appetite for making the bourse more of a global institution, which was one of the four targets he set for this tenure, a person said.
That’s tied the HKEX more closely to China, with its success in drawing listings of major Chinese companies this year becoming one of the few bright spots for a city roiled by the coronavirus pandemic and a crackdown following the imposition by Beijing of a new national security law. Hong Kong is suffering through a deep recession triggered by civil unrest and the fallout of the pandemic.
Average stock trading volumes rose 51% in the first nine months, while total raised equity funds, in both IPOs and secondary listings, more than doubled. Daily trading through the bourse’s link to Chinese exchanges hit records in the year through September.
Tightening links further with the mainland is now the “irreversible” path for the bourse, Li said in the interview this month.
The next steps could be to allow Chinese investors to buy bonds on the bourse, as well as opening up to derivatives and the primary stock market, he said.
Even so, the push toward the mainland is not all welcome in China, in part as the nation wants to promote its mainland bourses. Expanding the link to include several benchmark stocks has proved difficult. One sticking point is whether to include shares like Hangzhou-based Alibaba Group Holding Ltd., which are dual listed and with weighted voting rights.
For now, Cha views interim CEO Tai as a safe pair of hands due to his familiarity with the operations and infrastructure, according to people familiar. Tai’s operational approach would make him a good successor should Cha want to tighten her control of the bourse’s direction, the people said. While Tai may be suited for the job, the 58-year-old could be approaching retirement age.
Li this month offered some thoughts on what it takes as he heads out the door.
One needs to be “strategically absolutely confident, but technically be humble,” he said.
There’s a kind of “different operating logic” in China, Li said. “In terms of people relations it’s very emphasizing on the relations. Certain things can be done easier if the relationship is stronger.”
(Updates with more executive departures in the 13th paragraph.)
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