• Aug 30, 2017 2017 Summer Institute of Finance in Qingdao
    The 8th Summer Institute of Finance, jointly organized by Shanghai Advanced Institute of Finance (SAIF), Cheung Kong Graduate School of Business, and PBC School of Finance, was held in Qingdao, Shandong Province, from July 20 to 22, 2017. More than 60 scholars and industry experts from all over the world attended the summit to share their research and insights. Sheridan Titman, former President of the American Finance Association Chair Professor of Finance at the University of Texas at Austin and Special-term Professor of SAIF, served as the Chair of the Jury Committee. Prof. Jiang Wang, Chair of SAIF’s Academic Council, Prof. Chun Chang, Executive Dean, and Prof. Hong Yan, Deputy Dean, along with Prof. Nengjiu Ju, and special-term professors Anmin Zhang and Huibing Zhang were present at the event. The summit this year received 265 papers, 10 of which were selected by a jury panel of more than 30 members to be presented at the summit, in addition to a policy-oriented paper. This summit focused on China’s financial issues and covered such topics as market bubbles, information transmission, executive incentives and corporate governance. SAIF Prof. Hong Yan and special-term Prof. Sheridan Titman,Prof. Huining Cao of CKGSB, and Prof. Hong Zhang of PBCSF presided over the discussions at parallel sessions. SAIF Prof. Nengjiu Ju presented his paper entitled “Optimal Contracting with Unobservable Managerial Hedging”. Scholars from the United States, Canada, Australia and China listened to the presentation and commented on the paper.
  • Aug 30, 2017 SAIF Co-Sponsors 15th China International Conference in Finance
    Organized by the MIT Sloan School of Management and cosponsored by Shanghai Advanced Institute of Finance (SAIF) and School of Economics of Zhejiang University, the 15th China International Conference in Finance was held in Hangzhou from July 12 to 15, 2017. More than 800 scholars and industry experts around the world attended the conference. Jiang Wang, Special-term Professor and Chair of SAIF’s Academic Council, served as the chair of the conference. At the conference, Congjiu Zhu, Vice Governor of Zhejiang Province, delivered a welcome speech, followed by a keynote speech addressed by Sheridan Titman, Professor of the University of Texas, Austin. The conference received nearly 1,200 papers, and a total of 240 papers were shortlisted. The authors were professors and doctoral students from world-class business schools as well as researchers from various financial institutions and regulatory bodies. The papers of several SAIF professors, including Hong Yan, Yeguang Chi and Xiaomeng Lu, were on the shortlist. More than ten papers from nine SAIF special-term professors, including He Zhiguo, Harrison Hong and Lu Zheng, were also included, which made SAIF a prominent contributor in terms of both the number of authors and that of papers. During the three-day academic conference, Tan Wang, Jun Liu, Hong Yan, Huibin Zhang and several other professors of SAIF served as the chair of conference subcommittees, among whom SAIF special-term Prof. Jun Pan acted as the Program Chair and SAIF special-termProf. Xiaoyun Yu was Program Co-Chair.
  • Aug 30, 2017 SAIF 2017 Commencement Ceremony Held
    Shanghai Advanced Institute of Finance (SAIF) held a graduation ceremony on July 9, 2017, at which more than 350 graduates were awarded degrees. Prof. Wei Cai, Vice President of Shanghai Jiao Tong University, attended the ceremony and addressed a speech. Mr. Jianqin Jiang g, Chairman of China-Central and Eastern Europe Investment Cooperation Fund and former Chairman of the Industrial and Commercial Bank of China, served as the keynote speaker. Mr. Jiang pointed out that success comes from persistence and perseverance. In the financial sector, the one who sticks to the end will be the king. The financier community appreciates not sprinters but marathon champions. He encouraged the graduates to fight for long-run successes instead of being contented by brief applauses. Graduates of the MF, FMBA, EMBA, DBA and PhD & Ms-PhD programs attended the event. Prof. Jiang Wang, Chair of SAIF’s Academic Councilcongratulated the graduates and hoped that they would always carry the SAIF spirit with them. The graduation ceremony was hosted by Prof. Chang Chun, Executive Dean of SAIF. Jie Pan, Associate Dean, served as the master of the ceremony. More than ten leaders and professors, including Yaguang Wang, Vice Dean of the Graduate School of Shanghai Jiao Tong University; Qigui Zhu, Secretary of the Party Committee of SAIF; Feng Li, Deputy Dean; Hong Yan, Deputy Dean; and Fei Wu, Associate Professor were present at the ceremony. Outstanding graduates were commended at the ceremony. He Wang, Zhang Wenbo, and Chen Xuanxuan---graduates of MF Program, and Zhu Yun and Wang Pengfei---graduates of FMBA Program, were honored as “Distinguished Graduates in Shanghai”. Other fifteen graduates, including Xu Junru and Xu Zhengwei, were honored as “Distinguished Graduates of Shanghai Jiao Tong University”.
  • Aug 30, 2017 Identifying 'gray rhinos' key to reducing their risk
    Identifying ‘gray rhinos’ key to reducing their risk It's only recently that the term "gray rhino" entered the lexicon of the economic world, but what it indicates — large and obvious risks that are often neglected — has always been around. In China's case, the "gray rhinos" could stem from shadow banking, the real estate bubble, high leverage at State-owned enterprises (SOEs), local government debt and illegal fundraising, according to the Office of the Central Leading Group on Finance and Economic Affairs, China's top economic policymaking office. Identifying "gray rhinos" is important in dealing with them. How can we guard against a certain risk if we don't even acknowledge its existence? The US subprime mortgage crisis was a typical example of failing to recognize the "gray rhino." Before the crisis, many people were aware that there was a problem with subprime mortgages, but combined with the inattention of regulatory bodies to this problem, some were inclined to believe that the problem would somehow go away, which proved to be wishful thinking. The "gray rhinos" threatening China are well-known to the public, which has heard numerous warnings from various experts. Take the real estate bubble as an example. It's apparent to many that the current state of China's economic development can hardly sustain high property prices in major cities for long. However, since the real estate sector is a pillar industry of the economy, any attempt to prick the bubble may trigger a crisis and have a negative impact on the overall economy. Therefore, deflating the bubble without pricking it is a delicate, long-term balancing act for the government. While the real estate bubble seems relatively urgent and severe, it should be pointed out that shadow banking has played a crucial role in the formation of almost all the "gray rhinos" in China, contributing not only to the bubble in the property sector but also to SOEs' high leverage. But shadow banking itself is not the real cause of the problem, and a proper understanding of the origin of "gray rhinos" is needed to address the risks. The rise of the shadow banking sector is driven by financing needs that cannot be met through either the formal banking system or the capital market. China's banking system has developed unevenly and it is not completely market-driven. The inadequate incentive structure in the financial system keeps lenders from serving the needs of all enterprises and consumers. China's financial imbalances and excessive liquidity have also contributed to the growth of shadow banking, as excessive liquidity has failed to flow into the real economy and has instead circulated in the financial system. This situation has in turn exacerbated the real estate bubble, SOEs' high leverage, excess local government debt and other risks. Addressing such risks without pricking the bubble requires a delicate balance of measures, meaning that decision-makers need a high level of wisdom to steer the whole economy. An "iron fist" approach should be avoided or it may risk triggering a new crisis. For instance, when China's securities regulators cracked down on margin financing outside the brokerage system in June 2015 to reduce mounting risks in the stock market, their action backfired as it stoked market fears and led to plunges in stock prices. With high leverage seen as a source of financial risks, some are concerned that the deleveraging process will cause a slowdown in economic growth, which may generate new risks and cause new crises. Such worries could be justified if China's economic environment remained stuck in the past, when financial institutions and SOEs relied heavily on excess liquidity and high leverage. To break out of this cycle, China must further facilitate the growth of small and medium-sized enterprises (SMEs) as well as innovative companies. That requires strong policy support from the government, such as lowering the entry barriers to key industries for non-SOEs and reducing the tax and regulatory burdens of SMEs to improve their profitability. Capital always seeks the highest returns, so if SMEs improve their revenues and profits, capital will naturally be drawn into them and keep liquidity from flowing out of the real economy. To defuse China's "gray rhinos," authorities need to control risk and reduce leverage in traditional sectors, while at the same time providing incentives to guide capital into SMEs and innovative industries that will be the new drivers of continued economic growth.
  • Aug 04, 2017 China's wealth managers join forces to tap family office growth
    China's wealth managers join forces to tap family office growth Chinese wealth managers are increasingly teaming up to penetrate the top-end family office business sector in China in order to serve the burgeoning number of super rich, say industry insiders. More wealth managing institutions, including banks, trusts and wealth management firms, are making the foray into the family office business at a time when it is still in the early stages in China. With a long history in the US and Europe, family offices are organisations run on behalf of a high net worth family with the goal of wealth preservation and transferring wealth to future generations. Typically, they are composed of private bankers, asset managers and lawyers who take care of investments, taxes, trusts and legal matters. Unlike in overseas markets – where a single family office, or those only serving a single wealthy family, are more common – in China there could be a larger number of multifamily offices, or organisations serving a number of ultra high net worth families, according to Wu Fei, an associate professor at the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University. "We've seen a growing trend where local family offices are outsourcing their non-core business, or choosing to join hands with professional services providers in specific segments," said Wu. He said it could be too demanding and costly for a single institution to offer all types of services required by a high net worth family by their own staff. In these cases, the work can be outsourced in cooperation with other firms, including tax planning, family education and charity contributions. Financial institutions sometimes even need to team up with niche service providers for tailor-made services, such as booking a journey on a private jet, visiting Ivy League universities in the United States, and obtaining VIP tickets for a pop-star concert. More than half of family offices on the mainland were set up in 2015 and 2016 to tap the emerging market, according to a study led by Wu in cooperation with consultancy FOTT. Most of their assets under management are worth less than 10 billion yuan (US$1.5 billion), according to the study, which surveyed 35 multifamily offices in China. Family trusts, a popular arrangement for wealth preservation and inheritance, could be a common service, or first step, offered by businesses aiming to penetrate the family office market, though not all are required to include the service. In China, only licensed firms can operate as trustees, driving wealth management businesses to team up with trust firms. Beijing-based CreditEase Wealth Management has joined hands with five trust firms both onshore and offshore, including mainland China based Chang'an Trust. Through the partnerships, CreditEase makes use of the trust structure to offer customised wealth management solutions, said Dillon Hale, head of family office for CreditEase and a member of its global asset allocation committee. "The business shows good signs of growth since operations started in late 2015, with 50 cases in the pipeline," he said, adding that he expects projects to grow 50 per cent in value each year in next three years before ultimately expanding it to a full service family office in the long run. The proliferation in number of super-rich is luring financial institutions and professional services providers like accountants and lawyers into the family office sector. In 2016, China was home to 1.58 million high net worth individuals who have at least 10 million yuan (US$1.5 million) in investable assets, and the number is expected to grow 18 per cent to 1.87 million this year, according to a joint report from Bain and China Merchants Bank. Their combined investable assets of 49 trillion yuan in 2016 are projected to rise to 58 trillion yuan this year.
  • Aug 04, 2017 Color of money: what’s green, what’s not?
    FORGET the 50 shades of grey. What counts in China’s world of finance are all the nuanced shades of green and an alarming lack of blue. With smog choking the skies over many Chinese cities and Beijing once again shrouded in a pall of pollution last week, the government initiative to push investment in clean energy and environmentally friendly projects is gaining traction. Under guidelines issued by the central government in late 2015, Chinese banks are encouraged to provide credit for green investments, private funds are urged to become involved in saving the planet and company bonds that are classified as green get higher priority in the approvals process. China last year became the world’s largest issuer of "green bonds," accounting for nearly 40 percent of global issuance. The market value of those bonds swelled to US$36.2 billion from nothing a year earlier. Some market players described the growth rate as "zero to hero." But that does raise some questions. What is green and what is now? It’s an area of considerable grey. The European Investment Bank and World Bank, which started issuing green bonds in 2007, drafted the Green Bond Principle in 2014 — setting forth criteria now used as a common global standard in defining "green" investment. "The green bond market is like a baby," said Tzu-kuan Chiu, a professor at the Shanghai Advanced Institute of Finance, who studies the sector. "It will show great growth when it’s still young and small. But if you look deeper into the projects involved, you will find we still have a lot of work to do, starting with the definition of 'green.’" That’s a pivotal point given the rapid growth in the sector. The global green bond market grew from about US$3 billion in 2012 to US$81 billion last year, with China as the main driver. Ma Jun, chief economist of the research bureau at the People’s Bank of China, told a forum last month that the momentum of green finance will continue this year. "China requires three to four trillion yuan of green investment annually to push the initiative," Ma said. "The central bank is the primary pusher." Last year, 53 green bonds were issued by 33 different entities in China, including eight clean-coal projects issued by the Industrial Bank of China and two bonds involving the China Three Gorges Corp, operator of world’s largest power station. "According to the global standard, large dam projects and chemical materials projects such as coal are not eligible to be labeled as green," Chiu said, "There’s no difference between clean coal and dirty coal to foreign investors. Coal is coal." About a third of China’s green bond issues, or US$12.6 billion, doesn’t fit the global definition of green, according to the Climate Bond Initiative and the China Central Depository & Clearing Co. The central bank’s Ma admitted that controversy over the definition does exist, but he said the standard here needs to be put in the context of realities in China. Coal, for example, accounts for two-thirds of China’s energy consumption. "New energy technology is expanding very rapidly," Ma said. "In talking about energy saving and emissions reduction, we should focus on supporting clean coal technology. If we achieve a breakthrough there, we are likely to reduce the emissions of carbon dioxide and sulphur dioxide by 70 to 90 percent." Companies wanting to issue bonds are naturally keen to adopt a liberal definition of green. They argue that projects need to be assessed on how they improve the overall environment. "Many companies want to lift their environmental credentials by issuing green bonds to finance their conversion from polluting to clean energy factories," said Xu Ping, business director of the clean energy department at Q-TZG Leasing Co. "Others are just seeking a quicker channel for fundraising." The demand for "green" certification in debt issues is spawning a booming business in third-party rating services. Major players include the big four accounting firms, think tanks and consulting companies. Those services certified almost 87 percent of the green bonds issued last year, with Ernst & Young accounting for nearly half, according to data compiled by China Lianhe Credit Rating Co. That compares with about 60 percent of applicants in the global green bond market getting certification. Adding to headaches for the green bond market is the wariness of some investors toward such investments. For one thing, it is still not very clear how some long-term green projects will make money, especially when most banks and other investors prefer shorter-term products amid profit pressures. "At the end of the day, a green bond is a financial product," said Yasumasa Shimizu, chief executive officer of Shanghai-based consulting firm Sustainable Technology of Ecology. "Investors won’t look too closely at how green it is, but they will assess its value as an investment and its return on profit in 10 years or 20 years." The average yield of a five-year green bond is about 4.2 percent, up to 0.4 percentage points lower than other bond products of the same duration, according to a joint report by the Climate Bond Initiative and the China Central Depository and Clearing Co. "Some projects have exaggerated their true outlook for financial returns because they are guaranteed by local or provincial governments for political reasons," Shimizu said. Bank of China, the last big domestic green bond issuer, sold US$3 billion of green debt in three tranches, including one in US dollars and another in offshore renminbi. Other issuers include renewable energy companies, city transport systems, a local government financing vehicle in Anhui Province, automaker Geely, property developers and the government of the Tibet Autonomous Region. Chiu said green assets are more suitable for long-term investors, like insurance companies and pension funds. But in the Chinese market, investors aren’t likely to consider the value of social returns. The central bank and the National Development and Reform Commission, which oversee the issue of green bonds, are striving to cultivate market appetite for such debt. The incentives include interest subsidies, lower-cost loans, the establishment of national green development funds and the promotion of emissions trading. Will it work? "Policies don’t make a meal if investors won’t come to the table," Chiu said. "There needs to be an appetite for green assets." Still, money is expected to swirl around the sector for years as new instruments are designed to promote the green initiative. Shimizu said one of the promising tools is asset-backed securities, whereby companies can use the first phase of a project as collateral to raise funds for subsequent phases. Others say the green agenda should be expanded. For example, bike-sharing businesses might be counted as green. "In terms of green investment, there’s a gap between financial and social returns," said James Chang, financial service consulting managing partner with PwC China. "It’s hard to satisfy both aspects at the same time."
  • Jul 10, 2017 Prof. Qian Jun on the Trends and Characteristics of Offshore M&A by Chinese ...
    A tender offer from China National Chemical Corporation for Swiss Syngenta, the largest pesticide company in the world, officially concluded recently, which means this $43 billion takeover, one of the largest offshore M&A cases engaged by a Chinese corporation, can be delivered once all review and approval processes are finalized. Qian Jun, Professor of Finance at SAIF and Vice Director of China Academy of Financial Research, illustrated three trends and characteristics of offshore M&As by Chinese companies. First of all, many enterprises, especially in traditional industries, are conducting diversified cross-industry M&As. Although diversification has become a major trend, it is necessary to be cautious. Second, with massive M&As and asset allocation across the world in recent years, Chinese enterprises have changed to capital exporters from capital importers as assets, technology, market and industry layout become the targets of such M&As. In the process, country risk evaluation and differences in corporate culture should be alerted. And third, a wave of transnational M&As was formed among Chinese enterprises in 2016. By the first quarter of 2017, the demand continued to increase while it was hit by the difficulties in capital outflow. Recently, as both the foreign exchange reserves and exchange rates are stabilizing, there is no doubt that the tide of offshore M&As would recover if the market remains steady.
  • Jul 10, 2017 How Do Institutional Investors Beat the Market? Prof. Chi Yeguang at SAIF Wins A ...
    Institutional investors in China outperform the market on an ongoing basis! With the adjustment of market risk factors, the total return of stock funds is 6.5% higher than market average. After deducting expenses, it is still 4.75% higher, which is widely different from the US market. How do they make it? A study of Chi Yeguang, Assistant Professor of Finance at Shanghai Advanced Institute of Finance (SAIF) of Shanghai Jiao Tong University shows that it is related to the composition of investors as well as the information advantages of institutional investors in China. His thesis named Private Information in the Chinese Stock Market: Evidence from Mutual Funds and Corporate Insiders about the effectiveness of the secondary stock market in China, based on an analysis of positions and returns of 400 actively managed and stock funds from 2003 to 2015 as well as an in-depth research on the stock holdings of major shareholders of listed companies, won the first prize of CFA Best Paper in the 29th Australasian Finance and Banking Conference CFA Institute Research Award in late 2016. According to Prof. Chi, the effectiveness of a secondary market depends on the distribution of information and pricing. First, an effective market should distribute relevant information to all market participants. And second, market participants should be able to analyze the information accurately and influence asset pricing through trading. However, Prof. Chi found that Chinese retail investors fall behind institutions in both areas. First, in terms of information gathering, institutions could gain first-hand information due to their huge database while for retail investors the information flow is much slower. Second, in regard of information analysis, institutions can hire financial experts to analyze the information and trade stocks while retail investors are behindhand. Thus, it is natural for institutions to defeat retail investors and beat the market as the market is dominated by retail investors in China. Still, the profile of China’s stock market is improving on a vertical basis. On one hand, the performance of stock funds is falling with a total decrease of 1.3% over the past decade. On the other hand, the predictability of share prices through what significant shareholders are buying is decreasing in recent years.
  • Jul 10, 2017 SAIF’s International Module of “Finance and Innovation” Concludes in Bosto ...
    SAIF’s international module of “Finance and Innovation” was successfully held in Boston between February 13 and February 17, 2017. A total of 37 participants from MBA and MF programs attended the module under the guidance of Prof. Charles Chang. Themed Finance and Innovation”, this module explores the financial and business ecosystems both in China and in US, through classroom lectures and overseas practices. It aims at expanding the international vision of the participants and their understanding of global financial innovation. At Sloan School of Business of MIT, the participants studied and discussed the theme with three professors. Prof. Chunk Kane, on the ground of entrepreneurs, shared his opinions on investment and entrepreneurship with real-world cases. Prof. John Gran analyzed the key success factors for popular startups in Boston. Prof. David Birnbach demonstrated the benign ecosystem that facilitates innovations in Boston. Prof. Wang Jiang, Chairof the Academic Council of SAIF, also interacted with the participants at MIT. At Harvard Business School, Prof. William R. Ken conducted a “lean startup” case study for the participants. Through classic examples and consilience of knowledge, he guided the participants to share their own views in the classroom. In Boston, the participants also visited the reputable Rose Park Advisors, Cambridge Innovation Center, MIT Startup Exchange, Cooley LLP Law Office and Owner IQ Company, where they exchanged views with the executives, venture capitalists and star entrepreneurial project directors.
  • Jul 10, 2017 Five Experts Talk about M&A at Lujiazui SAIF Forum
    At the Lujiazui SAIF Forum held by Shanghai Advanced Institute of Finance (SAIF) of Shanghai Jiao Tong University on April 22, over 300 experts and scholars on economics, law and regulation gathered to share their research achievements and real-world cases, and explore the challenges in domestic and overseas M&A practices.. Pan Jie, Associate Dean of SAIF, and Ms. Guo Zhiying, Deputy Director General of Lujiazui Financial City Development Bureau, both delivered a speech on behalf of the organizers. Then, Mr. Li Xunlei, Chief Economist of Zhongtai Securities Co., Ltd. and Qilu Securities Asset Management Co., Ltd. and Vice President of China’s Chief Economists’ Forum, delivered a keynote speech of “Economic Trends and Opportunities in China”. Prof. Qian Jun of SAIF and Vice Director of China Academy of Financial Research (CAFR), shared about the new trends of worldwide M&As among Chinese companies. Furthermore,Xiao Kai, professor of the School of Law, Shanghai Jiao Tong University and Financial Commissioner of Shanghai Procuratorate made a speech on the “criminal and legal risks in financial innovation”. In a panel discussion, three guest speakers, namely Li Xunlei, Prof. Qian Jun and Prof. Xiao Kai, along with Mr. Cai Mingpo, Chairman of Cathay Capital PE, and Mr. Wang Ziming, President of Greenland Group M&A Centre, discussed and explored the innovations and risks in M&A.