UBS sets a troubling precedent in China


By Alec Macfarlane

(The author is a Reuters Breakingviews columnist.)

HONG KONG, June 17 (Reuters Breakingviews) - UBS has set a troublesome precedent in China. The Swiss bank put a senior economist on leave after misconstrued comments triggered outrage in the mainland. The episode hints at new pressures for outsiders working in China; excessive subservience, however, creates bigger headaches.

Companies have landed in hot water with difficult governments before. Indonesia removed JPMorgan as its primary bond dealer after analysts issued a negative report on the country in late 2016, though later reappointed it. China is only encouraging the trend, pressing businesses to apologise for perceived offences such as leaving Taiwan off maps. Financial data provider Refinitiv, under pressure from Beijing, blocked in China Reuters' 30th anniversary coverage of the Tiananmen Square crackdowns on protesters.

But corporate grovelling is usually reserved for political grievances. Here, by placing Donovan on leave, the bank gave in to rivals too. UBS does business with Haitong, but also competes with it in everything from equity and debt issuance to wealth management, a battleground that will intensify now that UBS owns a 51% stake in its Chinese venture. The Hong Kong securities trade group speaks for over 120 potential competitors.

The UBS episode is indicative of heightened sensitivities, and how Chinese companies are ready to pounce. It suggests banks and other companies would be wise to close every loophole. Donovan, for example, works in wealth management not the investment bank, where research output and commentary are more closely scrutinised.

An apology was probably necessary. Unfortunately, UBS has done peers few favours by going further. Chinese netizens and businesses will only be encouraged to get worked up more often.

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- Paul Donovan, chief economist of UBS Global Wealth Management, has been asked by the Swiss bank to take a leave of absence, a spokesman said on June 14, after comments on food inflation and swine fever included a reference to pigs that was perceived as a racist slur.

- Donovan said in a podcast on June 12 that food prices in China had risen mainly due to the epidemic. "Does this matter? It matters if you are a Chinese pig," he said. "It matters if you like eating pork in China."

- Haitong International subsequently suspended all collaboration with UBS, including corporate finance and trading, Haitong International said in an email to Reuters.

- The Chinese Securities Association of Hong Kong, whose member firms include offshore subsidiaries of Chinese brokerages and fund houses, demanded on June 13 that UBS dismiss Donovan and issue a formal apology from the board. It also called for companies and individuals to consider carefully when it comes to conducting business with the Swiss bank.

This article appears in: Stocks , World Markets , Economy , Banking and Loans

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