California Must Make Itself the Pacific Rim’s Financial Center

Earlier this year, at the initiative of Matt Fong, California’s state treasurer, an impressive group of senior executives and leaders of the business and financial communities from California and Asia met for a day of high-level discussions under the ambitious title of “California: America’s Financial Center for the Pacific Rim.”

The premise for this “summit” was simple: In this era of globalization, do we have the skills, resources and capabilities to gain a major share of the financial future in what is becoming the world’s most vibrant economic area?

Among the presenters were George Shultz, former U.S. secretary of State, Treasury and Labor; Jackson Tai, managing director for the Western U.S. at J.P. Morgan; Sheryl Pressler, chief investment officer of the California Public Employees’ Retirement System; Michael Boskin, former chairman of President Bush’s Council of Economic Advisors; Robert Greber, chief executive of the Pacific Stock Exchange; Gordon Wu, managing director of Hopewell Holdings in Hong Kong; Dick Rosenberg, chairman of BankAmerica Corp.; Claude Charles, chairman of Equinox Capital Group (Hong Kong); and yours truly. In attendance were nearly 200 representatives of the international financial community.

The global revolution in financial services is a dramatic phenomenon. By 1995, all indicators of international financial activity had grown by tenfold or more relative to the levels of the early 1980s. The results are similar whether one focuses on cross-border trade in securities, the growth of multiple exchange listings, international placements of initial public offerings, international bank lending or the booming foreign exchange markets.

The critical issue at the meeting was: What are the possible opportunities for California in these booming markets?

To dramatize my point on where the opportunities lie, I selected the Asian financial page of a major business journal and looked for news items that I thought might relate to California’s economy. Here, briefly, is a small sample of what I had found during one typical week.

* Monday: China announced that foreign investment in 1995 reached $40 billion, an increase of 30% over 1994, and Vietnam announced that it was seeking $42 billion in investments over the next five years.

* Tuesday: South Korea indicated its intention to place shares associated with the privatization of Korea Telecom in foreign capital markets. Japan’s NTT Data Communications Systems said it would issue 140 billion yen in new shares, to a large extent in overseas capital markets.

* Wednesday: Thailand introduced a proposal to begin real estate investment trusts that could generate more than $1 billion in new property investments in the next two years.

* Thursday: Taiwan lifted its 15% ceiling on stock purchases by foreigners by exempting individuals, but not institutions, from such limits.

* Friday: China announced that telecom investments for 1996 will exceed $12 billion, and the capital markets supervisory agency for Indonesia indicated that foreigners would soon be allowed to own up to 100% of listed mutual funds and up to 85% of listed brokerage firms.

So how do we in California increase our share of this business?

The consensus was that we must strive to reduce the cost of transactions by expanding our efforts at deregulation, and by developing the infrastructure to make such transactions as smooth as possible. We should promote improvement of the business climate in California to the point that California becomes the first choice, the natural choice, of any firm seeking to expand its capital base.

One critical institution in this process is the Pacific Stock Exchange. The New York Stock Exchange is actively courting the largest 1,000 foreign firms for listing there. Many will do that, as they should. But there are literally thousands of mid-size Asian and Latin American companies exhibiting rapid growth and an appetite for capital and that are not of a size that would interest New York. The PSE is creating a special listing category for these firms--an “Asian Board” to make them accessible to California and U.S. investors at a fraction of the cost of and with less-burdensome reporting requirements than demanded by the NYSE.

As Greber indicated at the meeting, the Asian Board would be a steppingstone to U.S. capital markets, where small companies can test investor interest, learn to comply with reporting regulations and develop the experience that would eventually allow them to list elsewhere, if needed.

We should welcome Matt Fong’s initiative and contribute ideas and resources to making this vision a reality. California can and should be the financial center for the Pacific Rim. Where else are the opportunities and human resources in such abundance?