Dec. 31, 2020, was Lee’s last day as chief executive of the Hong Kong Stock Exchange.
Under the impact of the fourth wave of the epidemic in Hong Kong, the twin imposition of gathering restrictions and the ban on evening market dine-in at restaurants made Lee’s departure seem quiet. In an online media group interview organized half a month ago, Lee mentioned with regret, “I had planned to be able to walk through every department this month, and every employee we were able to chat a couple of sentences together, this ideal seems to be unattainable.”
Li Xiaojia’s contract with the HKEx originally expired in October 2021. in May 2020, the HKEx announced for the first time that Li Xiaojia would not renew his contract upon expiration and leave his position as chief executive, but just four months later, the HKEx announced again that Li Xiaojia would advance his departure date by 10 months to December 31, 2020.
The two announcements of the departure node saw the Hang Seng Index and HKEx share prices sink to varying degrees. This was also taken as the market’s reaction to the departure of the soul of the HKEx, who has led the company for 11 years.
“Li Xiaojia can say that there is no one before him and no one after him.” Wei Shanwei, executive vice president of China Renaissance Securities, who was CEO of Ping An Securities Hong Kong and has dealt with Li Xiaojia many times, commented this to Tencent News’ Subliminal. Wu Biwei, president of financial and corporate services at Fortress Securities, was more direct in his assessment, “Li Xiaojia is the most influential among the previous CEOs of the HKEx and even the future development of Hong Kong.”
Historically and geographically, a variety of forces, including British, American, local, and Chinese, have converged and intertwined on Hong Kong Island, constituting a delicate balance. The new reform, however, will inevitably upset the balance and harm the interests of some people.
To promote the reform, he needs to play with some forces from time to time, but more often than not, he negotiates and cooperates with these people. These forces come from the financial regulators, the industry’s big money, and even within the HKEx.
He calls himself a “pipeline worker” and only does the unblocking and cleaning of the system, leaving the rest to the market. He is humorous and good at using metaphors to lobby all parties to make room for reform. At the same time, he is also unpretentious. In a group interview at Davos, he sat on the table and talked with us for an hour and a half because there were not enough chairs.
In the past 11 years, he has led the HKEx out of the quagmire of the financial crisis, balanced the interests of all parties, interconnected with the Shanghai and Shenzhen exchanges, attracted mainland capital, released the same stock with different rights, embraced the new economy, and became the global champion of IPO fundraising seven times. These efforts have also transformed Hong Kong, confused by its over-reliance on traditional industries, into the largest place in Asia for financing new economy companies and back to the center of the international financial stage.
In particular, the rise of Chinese capital and the new economy era have completely changed the original twilight look of Hong Kong’s capital market. From the perspective of capital structure, the share of southbound capital trading from mainland China in the Hong Kong stock market after the North-South interconnection has achieved “one out of three”; from the perspective of the type of listed companies, the market capitalization of new economy companies in the Hong Kong market has approached half of the market; in the newly issued IPO, the figure of Chinese institutions to be cornerstone investors is also There are more and more Chinese institutions as cornerstone investors in new IPOs.
Of course, there have been setbacks over the past 11 years. The blitzkrieg of mergers and acquisitions to LSE, with the intention of building up a global layout and an exchange giant covering three time zones in Asia, Europe and the United States, was promptly rejected and became a regret before he left office.
“I really feel that HKEx has taken a certain risk and a gamble by choosing a person like me to be the chief executive.” At the online farewell meeting half a month ago, Li Xiaogai looked back on 11 years at the helm of the HKEx and modestly attributed the credit to “catching up with the good times,” he told Tencent News “Subliminal” summary, “these 11 years just gave me a lot of opportunities, I just seized these opportunities at the right time …… I tried my best and also did what everyone seems to be quite satisfied with.”
In a farewell letter issued on December 30, Lee revealed that the next step will not leave Hong Kong, “I hope to use the ‘water knowledge’ learned in the Hong Kong Stock Exchange to continue to make some contributions to Hong Kong, to the country and to the market.”
Tencent News “subliminal” learned that before leaving office, Li Xiaogai more frequently contacted some giant companies, market participants speculate that Li Xiaogai intends to attract some industrial capital, the next part of the energy, may be placed on the fund investment, as well as small and medium-sized enterprise financing solutions.
At the media farewell meeting, Lee did not break this arrangement, he said tongue-in-cheek, he will no longer work part-time, but as for what specifically to do, “next year to tell you when you eat Nanji river noodles.”
The “outsiders” in the exchange
In 2009, the CEO of HKEx, Zhou Wenyao, was about to retire, coinciding with the spread of the financial crisis and the declining performance of HKEx.
Born in Beijing, raised in Gansu, worked as an oil rig worker, also penned as a journalist, studied in the U.S. as a lawyer, and bounced around a number of U.S. investment banks. …… With both a Chinese background and Wall Street experience, Li’s credentials seemed impeccable.
He was approached by a headhunter who wanted him to try his hand at the role of CEO of the Hong Kong Stock Exchange. The interviewers, two-time HKEx Chairman Chia-Li Xia and Mei-Lun Shi, were all in favor of his resume.
But once the announcement of Lee’s proposed appointment as CEO was made, public opinion was in an uproar. Not only is there concern about his lack of regulatory experience and unfamiliarity with local institutions in Hong Kong, but also because for the first time in the 20-year history of the HKEx, a person with a mainland background will hold this position.
In response to the “outsider”, CEO Zhou Wenyao, who has been at the helm of the HKEx for many years, told the media in Taiwan, “I haven’t met him and I don’t know him”.
The chairman of the Hong Kong Stockbrokers Association, Lee Yiu-sun, also spoke out through the media, expressing concern and wonder at Lee’s appointment. “Operating an investment bank is different from HKEx, which is a very unique industry. HKEx has a lot of technical projects, such as paperless securities and upgrading of trading systems, which need to be handled by people familiar with them, and Lee is a blank in this area.”
The first CEO of HKEx after the listing, Kwong Kee-chi, left the company in disgrace due to the “penny stock delisting” incident because of his lack of practical experience.
In response to these questions, Li Xiaojia laughs and says he is “ignorant and fearless”. To gain more local recognition, he hired a teacher to help him learn Cantonese and moved his family to live in Hong Kong.
As soon as he took office, Lee set out his ambition: to connect the world and China in the Asian time slot and become a true financial center for the Asian time slot in the world. He described in a weblog that “there are four clients we want to gather in Hong Kong – China’s money and China’s goods, the world’s money and the world’s goods. The goods refer to listed companies, bonds, currencies, and commodities.”
But to continue to introduce these “four customers”, the HKEx first need to align with other markets, especially with the A-share trading time alignment. Li Xiaojia plans to “two-step” approach, the Hong Kong stock trading lunch break from 2 hours to 1.5 hours, a year later and then shortened to 1 hour.
The shortening of the lunch break is unacceptable to a large number of local institutions and practitioners who make their living from stock brokerage business in Hong Kong. Wu Biwei, president of financial and corporate services of Futu Securities, explained to Tencent News “Subliminal” that, unlike the latter’s advantage on the mainland, where the online securities business is in full swing, local securities brokers in Hong Kong mostly get their clients’ trading volume through face-to-face visits during lunchtime, which has become a tradition that continues for many years. Shortening the lunch break affects their communication with clients, which in turn affects transactions and revenue.
In opposition to Li’s reforms, the Hong Kong securities industry unions have launched several marches and held a “bowl smashing ceremony”, implying that the reforms have smashed their rice bowls and demanding Li to step down. Even the restaurants in the vicinity of Central also sent representatives to participate in the march, because the shortened lunch break also affected their business.
Under the heavy resistance, Li Xiaogai “first bitter then sweet” to comfort the industry, he “on the Hong Kong Stock Exchange market reform measures” in a 10,000-word article, “the reform to extend trading hours in the beginning will not appear significant results, but the HKEx has been at the crossroads of reform, the reform is imperative. ” He also summarized the future development strategy of HKEx, namely “three centers”, “the preferred overseas capital raising center” for mainland enterprises, “the primary overseas investment center” for mainland capital, and “an all-round international financial center”.
Li Xiaojia’s Balancing Act
It has become a signature move of Li Xiaogai to use popular language and clever metaphors to elaborate on reform ideas and speak about the original intention of reform. He simply set up a blog on the HKEx’s official website, named “Li Xiaojia’s Weblog”, which had accumulated nearly 100 posts by the time he left office.
This is also seen as one of Li’s balancing act. It was a way to avoid the unpleasantness that could result from face-to-face confrontation, while leaving enough room for a more detailed account of his thoughts. In the future, when some reforms are difficult to promote in deep water, he often uses such a gentle, but firm way to get a wider range of resonance and support, looking for the largest market convention.
Compared to the furore over the shortened lunch break reform, the big institutional debate over missing out on Alibaba was the toughest reform that Lee encountered throughout his HKEx career.
In 2013, Alibaba Group planned an IPO and had repeatedly communicated with the HKEx to list in Hong Kong. However, Alibaba adopted the usual shareholding structure used by new economy companies, which means that the company gives up a majority stake for financing in the initial stage for growth, but the management can still achieve control of the company through the A and B shares with the same share and different rights model.
Concerned about the inequality of rights and investors’ rights, the HKEx decided to abolish the system of “same share, different rights” in the 1980s as a sign of fairness.
Under the barrier of the system, Alibaba went to the United States for listing.
A person who participated in the whole process of the reform revealed to Tencent News “Dive” that the voices of Hong Kong regulators were very fierce against it at that time. The reason was that the regulator believed that the existing mechanism was working well and there was no need for additional reform risks.
Caught in the financial system of Hong Kong, although the HKEx is the regulator, it can only be considered the second boss in front of the SFC, the big boss. This means that all reforms to the HKEx require the SFC’s nod.
The regulator who participated in the reform recalls that one of the most popular questions asked by the SFC was “Why should we change? Will there be no risk after the change?” No one can be sure what will happen after the change, because there is no way to simulate a realistic version of the financial markets. “Even if you do a virtual simulation, the SEC will still think that your model is virtual and not credible.”
“With Chinese companies going public far away from home, are we going to be highly committed to the fundamentalism of same share and same rights? Or do we recognize that there is a necessary market demand for same share and different rights at such a historical time, inside certain industries, and do we want to compromise?” In a previous interview with Tencent News “Subliminal”, Lee used “desperation” to describe the state of affairs at the time, “You don’t even have any place to talk about this, there are a lot of people who oppose it, there are a lot of people who support it, they all have their reasons, but there is no place to put this The reasoning is clear.”
In September 2013, after missing out on Alibaba at the Hong Kong Stock Exchange, Lee published a 3,800-word essay in his weblog, describing his dream in which he gathered nine people to discuss whether to The article concludes with Li’s arguments for the release of different rights for the same stock. At the end of the article, Lee proposes a solution, that is, the Hong Kong listing system can be reasonably discretionary, and the policy can be revised after public consultation if it is beyond the discretionary scope of the Listing Rules.
He even took the words of a dream to warn Hong Kong Island that “for Hong Kong, losing one or two listed companies may not be a big deal, but losing a whole generation of innovative technology companies is a big deal, and missing this generation of new economy companies is a big regret.”
In August 2014, the HKEx formally launched a market consultation on this issue, and until the second market consultation in June 2015, the SFC had said it was not “deaf to innovative ideas”, but the results came out in less than a week, and issued a statement of more than a thousand words denying All of HKEx’s proposals – and Lee’s ideas – were rejected.
After many games of reform, Li Xiaojia explained to Tencent News “Subliminal” at a media farewell meeting that his experience at the HKEx has taught him a lesson: doing reform in the Hong Kong market is very different from doing reform elsewhere, and it cannot be promoted from the top down, nor can it be completely bottom up, and it needs timely interaction with regulation through market consultation, with all parties’ strengths laid out and openly talked about, before it can finally be made.
Embrace the Mainland Embrace the New Economy
In September 2017, the first domestic Internet insurance company Zhong An Online, initiated by the “three horses”, went public in Hong Kong, which was also the first new economy concept company ushered in by the Hong Kong Stock Exchange that year and even since the appointment of Li Xiaojia. Before that, in June, after another round of discussion on how Hong Kong’s financial industry should meet the historical opportunities brought by the new economy, the Hong Kong Stock Exchange again launched a market consultation on the same-share different rights structure.
Chen Jin, former CEO of Zhong An Online, recalled to Tencent News “Dive”, “originally our management intended to wear only cultural shirts to celebrate the listing, but the HKEx staff clearly told us no, it must be formal wear, so the day before the listing we rushed to buy a suit in Hong Kong.”
But wait until the official bell ringing, Li Xiaojia in the trading floor in public, representing the traditional financial image, the rules of the suit, and prompted the management of Zhong An Online together to take off, to cultural shirts with jeans dress up. This is the first time in the history of the Hong Kong Stock Exchange.
Now look back on this detail, Li Xiaojia is trying to convey the HKEx’s gesture of embracing the new economy through the change in the form of external expression.
After the listing ceremony that day, Li Xiaojia delivered a speech saying that he hoped that following Zhong An Online, more technology, Internet and other new economy companies would choose Hong Kong as the place to list, while Hong Kong should also make efforts for the market structure, to pinch and maintain its own market quality in the new economy.
At the end of his speech, Li Xiaojia turned his words to say that the new economy to Hong Kong listing rules are under consultation, “I hope there will be a relatively big breakthrough in the next few months.”
Lee eventually got his wish. on April 30, 2018, the HKEx’s revised Main Board Listing Rules came into effect. New additions to the newly formulated Main Board Listing Rules include allowing unprofitable biotechnology companies, companies with different voting structures to list in Hong Kong, and a new facilitated secondary listing channel to admit Greater China and overseas companies to use Hong Kong as a secondary listing venue.
In the year of reform, HKEx staged a collective IPO feast for new economy companies, welcoming 218 new companies to the IPO market throughout the year and taking the top spot in global IPO fundraising. The largest number of companies listed on one day was eight, which together rang four gongs.
Li Xiaojia also made a special mention at the media farewell meeting, after the system reform, the HKEx expected more and more world-class companies to list in Hong Kong, four gongs are not quite enough, listed gongs also need to do more atmospheric, so the search to Shanxi to find a place specializing in gongs ordered a diameter of 80% longer, nearly 3 meters, weighing about 200 kilograms of copper gongs, spent 600,000 yuan.
After the new rules of the first new economy company with different shares Xiaomi, became the first listed company to use this gong. Followed by the heavyweight new economy company Meituan, became the second. Then followed the return of Alibaba, which missed out that year.
The arrival of these giants, superimposed on the previous interconnection with the Shanghai and Shenzhen exchanges, not only brought huge capital volumes to the HKEx, but also drove its trading volume – a change from years of dull market conditions.
“Trading volume has been a pain for the HKEx, and the trading activity is so poor.” A Chinese brokerage firm CEO pointed out to Tencent News’ “Dive” that for the exchange, such a problem is life-chasing. “Without trading volume there is no valuation, without valuation no one issues IPOs, and without people issuing IPOs they can’t make money, which in turn directly affects the Hong Kong government’s revenue – stamp duty.”
He pointed out that before these star new economy companies went public in Hong Kong in the past two years, although it has a large volume of Tencent Holdings, but Hong Kong stocks are concentrated too many real estate, mining, finance, low-end chain of consumer companies, which is also a side reflection of the structure of the Hong Kong economy.
The data can explain everything. The northbound and southbound trading volume of the Shanghai-Shenzhen-Hong Kong Stock Connect is huge, with a record average daily turnover of RMB 90 billion and HK$23.2 billion respectively in the first three quarters of 2020. In addition, the amount of northbound and southbound funds traded hit a new single-day high of RMB 191.2 billion and HK$60.2 billion back in July 2020.
The aforementioned CEO commented that the reforms initiated by Lee have helped Hong Kong become a center that truly links China and the world. In the past 20 years, Hong Kong has played the role of a bridgehead to attract overseas capital to the mainland, but in the next 20 years, Li judged that China is beginning to change to a capital-exporting country, and Hong Kong’s future role is no longer limited to providing international capital to mainland issuers, but more realistically begins to include providing opportunities for mainland investors to access international issuers and international financial products, as well as providing international investors with channels to invest in mainland listed companies and financial products.
To achieve this vision, HKEx needs more “Li Xiaojia”.
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