Visiting Sir David Li in his offices in Central, Hong Kong, is a lesson in modesty. The décor is more practical businessman than showman, and the welcome is simultaneously polite, and very warm.
Intrigued by the speed and agility with which he has expanded the business in mainland China, I recently put some questions to this seasoned banker, whose business approach to the large, and rapidly growing economy on his doorstep has been very successful. The Bank of East Asia will be 100 years old in 2019, and the BEA China subsidiary is 10 years old this year. The 19th National Congress in China has just concluded with the news that they will enshrine the “Thought on Socialism with Chinese Characteristics for a New Era “ to the party constitution as a guiding ideology. China is front and centre of Sir David’s plans for the future.
Professor McGregor: It feels like the perfect time to be interviewing you about the activities of the Bank of East Asia in China. In your interim report for 2017, you describe BEA China as ‘China’s most local foreign bank’. What do you think are the prospects for China over the next decade and beyond?
Sir David Li: I am sure that it is no surprise to you that I am very optimistic about the future prospects for China. The leadership has managed the delicate balancing act of guiding the economy through a period of transition, and the country is on track to meet its goal to double the size of the economy between 2010 and 2020. We have all read the reports in recent years that China’s economic growth is slowing. That is only natural, given the present size of the economy. And these reports often obscure the fact that economic restructuring is succeeding. The private sector is now the most dynamic component of the economy, and Internet giants such as Alibaba and Tencent, and many smaller companies that may not be household names, are driving change. These companies are innovators, not just in the domestic market, but also globally. As a result, China is a market leader in new economy areas ranging from Artificial Intelligence (AI), to Fintech, to renewable energy. I have no doubt that China will continue to innovate in the years ahead, supporting sustained economic growth. It is often said that challenges create opportunities, and I have seen time and time again that China treats every challenge as an opportunity.
Professor McGregor: BEA China had, at the last count, 30 branches and 77 sub-branches in 44 cities across the country, one of the most extensive networks of any foreign bank on the mainland. That expansion has happened very quickly.
Sir David Li: Yes, we expanded our branch network very quickly after we became one of the first foreign banks to win approval to set up a local banking subsidiary in China a decade ago. But we started long before that. The modern history of BEA in China goes back to the early days of the reform and opening era, when we were part of the very first Sino-foreign joint venture company in 1979. We have been through many ups and downs over the years, but one thing did not change – our commitment to the market.
Professor McGregor: What advice would you have for other CEOs who would like
to expand quickly in China?
Sir David Li: Earlier, I mentioned the dramatic shifts in the fundamentals of the economy. Market opportunities are constantly in flux, and the hot sector one year can quickly be superseded by another the next. Change is incredibly rapid, and you need to be able to anticipate change and deploy your resources accordingly, if you are to remain successful. Again, understanding the underlying trends demands a long-term commitment to the market – and constant vigilance.
Professor McGregor: You clearly have an interest in radical technology, and the power of technology to transform consumer banking. Has anything surprised you about developments in this field, and what do you think the banking of the future will look like?
Sir David Li: Technology is transforming banking worldwide. Over 90% of our banking transactions are now performed online. Our Hong Kong branch network is getting a digital make-over, expanding the range of digital services that we offer to customers. We shut down our retail brokerage outlets last year, and now handle all our share-trading business either online or by phone. These changes are very much customer-driven, as customers prefer the convenience and extended operating hours that our digital services provide. What has surprised me most is that even I have learned how to use the mobile apps. I regularly check financial news updates on my smartphone. I am proof that anyone can make digital a part of their life! We have a special technology lab where we test all our new hardware and software products before we roll them out. Not all innovations pass this hurdle, but those that do have been thoroughly reviewed for ease of use and utility. The back end of banking will continue to evolve dramatically, not only to provide greater convenience to the customer but also to drive down costs and to meet the increasingly stringent demands of the regulators. On the other hand, banking is still very much a relationship business. That will never change.
Professor McGregor: Turning to education, which I know is a great interest of yours, the citation for your knighthood in 2005 mentioned your great contribution to British education, and I know that among many other initiatives, you established the Prince Philip Scholarship to allow Hong Kong citizens the opportunity to study, as you did, at Cambridge. Why is education so important to you?
Sir David Li: Together with a number of very generous supporters from the
University of Cambridge and Hong Kong, I founded the Prince Philip Scholarship in 1982. To date, we have supported 176 students to earn an undergraduate degree at Cambridge. Of all the things I have done in my life, this is the accomplishment that gives me the most satisfaction. What is particularly rewarding is that the scheme is now run by past recipients of the scholarship, who are able to share their insights with the applicants and help them make the best choices. Every year, we hold a scholarship award ceremony in early September, before our new scholars leave for Cambridge. They each give a short speech about their plans and hopes for the future. They speak with such confidence, and with such high aspirations. It is in that moment that you see how very important it is that we nurture that hope, and support our young people in pursuing their dreams to the full capacity of their talents. That is why education is important to me.
Professor McGregor: And why do you think a British education is still so popular with people from all over the world?
Sir David Li: The high standards, sheer love of learning and international outlook of the UK are all important. That is why the Brexit vote is of concern to me. It reveals a more inward-looking Britain, at a time when the world is becoming a smaller place. What happens in different parts of the world affects us all, and the more open we are to a global change, the better.
Professor McGregor: You have been a great supporter of the project to acquire and restore Panmure House, the last home of Adam Smith. Do you think Adam Smith – a man who, after all, lived and taught and wrote in the 1700s – is still relevant today?
Sir David Li: Adam Smith is often referred to as the father of Economics. He was one of the leaders of the Scottish Enlightenment, a period of great intellectual ferment that gave us much of the basis for our modern-day views on human society. His unique contribution centred on the role of self-interest in promoting an optimal economic order, of the advantages of the division of labour, and the concept of the invisible hand – together providing the intellectual underpinnings of capitalism. However, he did not only laud the benefits of a capitalist economic system; he also warned of its shortcomings. The rigour of his argument and his strong moral compass, have sustained interest in his work throughout the intervening years. I am delighted that we have been able to honour his contribution through the Panmure House restoration.
Professor McGregor: Finally, here at the Edinburgh Business School we have recently launched a new MBA programme for entrepreneurs and in 2018 will see our incubator launch to support and help those who are starting businesses. The business your grandfather started will be 100 years old in 2019. What advice would you have for people starting out now if they want to see their own business last that long?
Sir David Li: Whether starting a new business, or sustaining an existing business, you must anticipate trends and then provide the best response. My grandfather was a rice trader, not a banker, but he was one of the first to see that traditional Chinese moneylenders could not compete with Western-style banks. The Bank of East Asia was one of the first local banks to follow the Western model. We have seen many changes over the years, and I spoke earlier about the way we are bringing digital innovations into every aspect of our business. In business, you must always be questioning your model. To stand still is to fall behind.
"Adam Smith not only lauded the benefits of a capitalist economic system; he also warned of its shortcomings.
The rigour of his argument and his strong moral compass, have sustained interest in his work throughout the intervening years.”