Investment in China

As the financial market of China became growingly critical to the entire world, one of the businesses with most substantial cash generating capability -- investment bank, naturally came into being. There are three main categories of most well-developed investment in China: foreign giants such as , and JP Morgan, the government owned companies like China International Trust and Investment Corporation (CITIC), as well as Chinese-foreign Equity joint ventures, with the most well-known examples of China International Capital Corporation Limited (CICC) and UBS Securities. But these cash generating machines seem not to be still getting what they want in China. Although foreign investment banks are more mature than most of the pure Chinese ones or joint ventures, they are not permitted to carry out most of their businesses in mainland China unless they form joint ventures and own less than 33% shares of the new company. Therefore, the function of all foreign giants are not available in mainland China. Hence, what I am going to discuss below concerns business of joint ventures to be in extremely closely relation with its corresponding foreign giants. We will take two typical corporations to analyze the current situation and future trend of investment banks in China: Morgan Stanley and CITIC.

Morgan Stanley

 Overview Morgan Stanley has over 2,000 in Asia-Pacific region and about 1,500 of them work in Greater China (Mainland China, Hong Kong, Macao and Taiwan), serving in the four offices located at Hong Kong, Beijing, Shanghai and Taipei. In 1995, a joint venture between Morgan Stanley and , CCIC, was set up, allowing Morgan Stanley to be the first International Financial Corporation (IFC) that established joint venture in mainland China. And through this, Morgan Stanley was able to provide service of going public overseas to many large Chinese corporations, including , , and so forth, with more than 10 billion US dollars total funding raised. In 2011, Morgan Stanley has sold all of its shares of CCIC and formally formed a new joint venture with Huaxin Securities Company Limited. The new company, Morgan Stanley Huaxin Securities Company Limited, is registered and principally located in Shanghai with business scope including underwriting and sponsorship of shares in the domestic China market (including A shares and foreign investment shares), as well as underwriting, sponsorship and principal trading of bonds.  CEOs Morgan Stanley appointed Ms. Wei Sun Christianson and Mr. William H. Strong to be the co-Chief Executive Officer, Asia Pacific at Morgan Stanley.

Ms. Wei Sun Christianson, working for Morgan Stanley in Hong Kong and Beijing for more than 8 years, has been rather active in the past in the field of investment banking of China in the past 15 years.

Mr. William H. Strong, a senior banker with over 30 years of investment banking experience, has been working for Morgan Stanley for over 18 years.  Business and Comment

 Star business of Morgan Stanley Morgan Stanley Real Estate provides a wide range of services concerning financing, consulting and investment services to the entire global real estate market. Almost none of the companies in the Wall Street can hold a candle to Morgan Stanley when it comes to the uninterrupted support to the real estate industry. This sector of Morgan Stanley is undoubtedly the market leader in all kinds of real estate capital markets, listed and unlisted stocks, secured and unsecured debt, and other markets. According to U.S. media, Morgan Stanley has informed its investors in 2010 of its $ 8.8 billion real estate fund loss (MSref) due to bad investments, taking up two-thirds of the funds. However, in Chinese market, Morgan Stanley is still quite optimistic about the real estate market and its investing. The investment in Asia area real estate market was 33% and 17% of the global market in 2007 and 2008 respectively. And the performance was very satisfying (see Appendix 2).

 Recent Financial Performance in China As Morgan Stanley has gradually sold out all its shares of CCIC and formed joint venture Morgan Stanley Huaxin Securities Company Limited, its business connection to mainland China has become more freely and active. And it successfully survived the financial crisis in 2008 and 2009, driving its net revenue back to 4,320 in 2010 (see Appendix 1). The revival is largely owing to the bold move of changing its business partner completely.

China International Trust and Investment Corporation (CITIC)

 Overview CITIC Securities Co., Ltd. was established in Beijing on October 25, 1995. The main business areas of CITIC Securities are securities brokerage, securities investment, financial consulting, securities underwriting and sponsorship, asset management and other intermediary services. The largest shareholder of CITIC Securities is China CITIC Group Company, and meanwhile, CITIC forms an integrated operation mode with CITIC Bank, CITIC Trust and other companies in order to provide comprehensive financial services with high quality for clients both in China and overseas. Ever since CITIC Securities was established, it continued to be the leading company providing investment banking services in China.

 Chief Leaders

Wang Dongming Mr. Wang, a Senior Economist, who has formerly taken positions of state Bureau of tourism Europe translator as well as vice president of Bank of Nova Scotia, Canada, has served as general manager and chairman of CITIC Securities.

Yin ke Mr. Yin has accumulated over 15 years’ experiences of finance. He participated in a number of significant events during the development of Chinese financial market, including the establishment of Stock Exchange. He also earned an astounding 16million annual salary in 2010 – the highest among the financial executives of all listed companies in China.  Business and Comment

 Star Businesses of CITIC Asset management has always been the most starring service CITIC offers. With over 13 years of asset managing experience and numbers of financial transaction honors they were given in the past several years, CITIC has proved their extraordinary asset management capability to the whole market of China. The average annual yield over 1998-2010 is 12.21%, and up to December 2010, 7 of their total 8 asset management plans have performed rather satisfying (see Appendix 3).

 Recent Financial Performance CITIC Securities, as the most government-supported investment bank, has experienced strong and steady booming since it was ever started. The net revenue as well as total assets has been steadily increasing except for the financial crisis 2008 and 2009. Recently, the company has been keeping a stable state of profiting and continuing its plan of oversea expansion through joint venture with the U.S investment bank Partners in Hong Kong (see Appendix 4).

But due to the still imperfect market condition of China, investment banks still have a long way to go to achieve their great success.

Appendix 1 Regional Data of Morgan Stanley Financial Statements 2006-20101 Net Revenues Fiscal 2008 Fiscal 2007(1) Fiscal 2006(1) (dollars in millions) Americas $ 13,317 $ 12,026 $ 18,577 Europe, Middle East and Africa 8,971 10,085 7,948 Asia 2,451 5,868 3,274

Total $ 24,739 $ 27,979 $ 29,799

At At At

November 30, November 30, November 30, Total Assets 2008 2007(1) 2006(1) (dollars in millions) Americas $ 461,596 $ 692,328 $ 690,498 Europe, Middle East and Africa 143,683 269,753 347,379 Asia 53,533 83,328 83,315

Total $ 658,812 $ 1,045,409 $ 1,121,192

One Month

Ended

December 31, Net Revenues 2010 2009(1) Fiscal 2008(1) 2008(1) (dollars in millions) Americas $ 21,674 $ 18,909 $ 10,768 $ (766 ) Europe, Middle East, and Africa 5,628 2,529 8,977 (215 ) Asia 4,320 1,996 2,395 44

Net revenues $ 31,622 $ 23,434 $ 22,140 $ (937 )

At December 31, At December 31, Total Assets 2010 2009 (dollars in millions) Americas $ 582,928 $ 571,829 Europe, Middle East, and Africa 153,656 143,072 Asia 71,114 56,561

Total $ 807,698 $ 771,462

1 All data are from official Morgan Stanley Annul reports.

Appendix 2 Real Estate Regional Data of Morgan Stanley2 Real Estate Investments. The Company’s real estate investments are shown below by business group, property type and geographic region. Such amounts exclude investments that benefit certain employee deferred compensation and co-investment plans. At November 30,

Business Group 2008 2007 (dollars in millions) Crescent(1) $ 3,062 $ — Real estate funds 1,104 2,237 Real estate bridge financing(2) 208 1,385 828 468 Infrastructure 108 9

Total $ 5,310 $ 4,099

Property Type 2008 2007 (dollars in millions) Office $ 2,247 $ 408 Mixed-use 288 496 Hospitality 475 392 Residential 977 478 Real estate bridge financing(2) 208 1,385 Private equity 828 468 Infrastructure 108 9 Other real estate 179 463

Total $ 5,310 $ 4,099

Geographic Region At November 30, 2008 2007 (dollars in millions) Americas $ 4,000 $ 2,039 Europe 397 698 Asia 913 1,362

Total $ 5,310 $ 4,099

2 All data are from official Morgan Stanley Annul reports. Appendix 3 Entrusted Assets of CITIC3

3 All data are from official CITIC Securities Annul reports. Appendix 4 Data and Graph CITIC Financial Performance4

4 All data are from official CITIC Securities Annul reports.