Manager's Chat | Financial Services and the Real Economy (Part 1)

Financial Services and the Real Economy (Part 1) 

After completing my graduate studies, I worked in the financial sector for many years, gaining experience across most areas—trusts, securities, funds, commercial banks, central bank foreign exchange, financial holding companies, and insurance. Later, I spent ten years working at a local government, consistently overseeing financial affairs. Eventually, I joined Asia-Potash and transitioned into real industry. At the beginning of this year, a classmate asked me to comment on today's financial services versus the real economy. I'm not sure I can offer an official evaluation, so let me share a few stories instead.

(1) Things Twenty Years Later

During a business trip to Singapore, I visited our partner bank—United Overseas Bank (UOB)—on behalf of AVIC Investment. A deputy head of the headquarters accompanied us on the tour. While visiting one branch, a notice on the bulletin board caught my attention: an event was scheduled for Thursday afternoon at a certain kindergarten. I asked the deputy head why they were organizing an event at a kindergarten, wondering if it was to attract parents as future bank customers. He shook his head and replied, "Not entirely. It's mainly for the children. We want them to learn about finance and get to know UOB through these activities. Twenty years from now, they might become our customers." I was quite surprised—here they were planning for events 20 years into the future, while how many of our banks can even plan effectively five years ahead?

(2) Brigadier General Security

While working at a local government, I was in charge of foreign affairs and once led a delegation to visit Austin, the sister city in the United States. On our way back, I wanted to take a look at Houston's medical industry, so I went there. We were hosted by the vice president of the Houston Chinese Chamber of Commerce, a young woman from northeastern China who was very warm and friendly. She invited us to dinner at an Egyptian restaurant and brought along a colleague—her boss—who was tall and imposing, with a strong military presence.

Since she worked for American International Group, an insurance company, and I had previously worked in the insurance industry myself, we naturally started chatting with her boss. I remarked on his military demeanor, and he introduced himself as a former brigadier general who had served in South Korea for 25 years, during which time he made five trips to Iraq and one to Afghanistan. I was curious about how someone with such a distinguished military background ended up working at an insurance company, so I asked what area he managed. He replied that he handled security operations. Naturally, I assumed he was a security manager overseeing Houston’s branch, but he clarified that he was responsible for global security. That surprised me—after all, I thought each branch should have its own security team, like railway police managing their own sections. How could someone based in Houston oversee security worldwide?

He explained that their insurance group had several high-profile clients whose policies exceeded $10 million, making their safety a top priority. For instance, if one of these clients planned to travel to a country in Africa, they would provide a comprehensive security advisory report analyzing the destination’s safety conditions, recommending transportation options, suggesting suitable hotels, and even advising where the client should seek shelter and wait for rescue in case of a terrorist attack. The company maintained its own security teams in certain African countries; if not, they would coordinate with other private security forces to ensure protection.

After hearing this, I felt embarrassed to admit I’d ever worked at an insurance company. Their business model had evolved far beyond claims processing and payouts—it now extended into proactive risk prevention, backed by a full suite of measures. In contrast, our domestic insurance practices still largely revolved around simply checking death certificates and other documents behind counters before issuing payments. Today, when we see commercial health checkup companies on the streets, we realize they were actually driven by foreign insurers. These services have elevated routine medical exams to a much higher level, truly serving as preventive medicine.

(3) Farmers and Futures

I once served as chairman of a Sino-French joint venture insurance company. During a trip to Paris for a meeting, I discussed with my French counterpart the issue of Chinese farmers suffering losses despite bountiful harvests (low grain prices harming farmers). He said that such situations rarely occur in France. When French farmers decide what crops to plant, they calculate all costs—including seeds, fertilizers, pesticides, field management, and agricultural insurance. After factoring in these expenses, they add a reasonable profit margin and then sell futures contracts on the Chicago Mercantile Exchange. This way, whether there's a bumper crop or a poor harvest, regardless of high or low market prices, they can still earn their expected profit. If many farmers grow the same crop and all sell futures contracts for it, the price of that crop will inevitably drop. When he checks the futures price and finds it has eroded or reduced his planned profit below expectations, he simply switches to growing another type of crop, recalculates the costs, and sells new futures contracts. Hearing this, I suddenly realized he was illustrating how futures markets serve the real economy. In contrast, in China, very few participants from the real economy engage in futures trading—most transactions are driven by speculators who merely bet against each other, aiming to outmaneuver one another. As a result, price signals offer little practical guidance for actual economic activities.

(4) A forward-thinking bank

In January 2020, I became chairman of Asia-Potash. At that time, the company had 400 million yuan in cash and over 3 billion yuan in book equity, with a debt ratio below 6%. I asked our technical team to assess expanding production capacity from 220,000 tons per year to 1 million tons annually. The project required approximately 1.5 billion yuan, and after deducting quality assurance deposits and other reserves, the actual funding needed was about 1.2 billion yuan. With only 400 million yuan on hand, we still needed to raise an additional 800 million yuan externally.

Since our project was located in Laos—a "Belt and Road" initiative country—most such projects are situated in developing or least-developed nations where local financial institutions lack sufficient financing capabilities. We therefore had no choice but to seek support back home. Our first idea was to apply for loans from domestic banks. Given the substantial net assets, low debt ratio, and existing 400 million yuan in cash, securing a loan at a 1:2 leverage ratio should have been feasible. However, not a single commercial bank agreed. Their reasoning was consistent: foreign assets (in Laos) could not be used as collateral within China, making it impossible to secure financing. We then approached a policy bank, which responded that they no longer handled private enterprise business; if they did, it would require a state-owned group to act as guarantor. This was impossible under state regulations prohibiting external guarantees. Domestic state-owned banks were out, so we sent representatives to Hong Kong to approach several foreign banks. They also declined, stating that Laos, being a socialist country, was not on their approved list. With no hope for loans and the capital market closed due to Asia-Potash having just narrowly avoided delisting—making it ineligible for refinancing—all paths seemed blocked. Our expansion project was left stranded.

We turned to litigation, seeking compensation from historical disputes. Before our team took over Asia-Potash, the original listed company's major and second-largest shareholders had engaged in years of internal conflict. The company filed lawsuits against both the major and second-largest shareholders, claiming damages totaling over 1 billion yuan. Cases were pending in Guangdong High Court and Beijing High Court. Both sides claimed breaches, each presenting different arguments, leaving courts hesitant to rule. The cases dragged on for three to four years.

I proposed a settlement plan on behalf of the listed company: instead of demanding full compensation, we would accept half—just enough to cover the 800 million yuan needed for expansion. The second-largest shareholders agreed, but the largest shareholder refused. Thus, we split into two tracks: litigation against the major shareholder and settlement with the others. The lawsuit against the major shareholder reached the Supreme People’s Court, which ruled in our favor, ordering him to pay 100% of the damages—but only 120 million yuan. The settlement with the second-largest shareholders accounted for the bulk of the funds, but complications arose. These ten shareholders included China National Agricultural Group. One shareholder accepted the settlement terms but lacked cash—only holding shares. He attempted to secure financing through multiple financial institutions by pledging his shares at a 25% discount, but failed. He shifted the burden onto the listed company, threatening that if he couldn’t pay, the entire settlement would collapse.

We contacted a bank in Guangzhou, explaining our situation. This bank had previously provided Asia-Potash with an 18-million-dollar working capital loan and thus understood the company well. After careful evaluation, they concluded that using shares pledged at a 25% discount posed manageable risk. They directly submitted the loan application to headquarters. It was rejected during the firs