China Daily Global Edition (USA)
Pioneer banker closer to offering a Chinese yuan service
Ken Wilcox, president of SPD Silicon Valley Bank and chairman of Silicon Valley Bank (SVB), had a chance to retire from a successful 23year banking career in 2011. But he chose instead to take on an extraordinary challenge: to go to Shanghai and establish a first-of-its-kind joint venture between SVB and Shanghai Pudong Development Bank.
Ranked by Forbes Magazine as one of America’s best banks, SVB has $23 billion in assets and more than 1600 employees in 34 locations worldwide.
Wilcox’s leap-of-faith has brought SVB one step closer to offering RMB service, a goal all foreign banks dream of attaining in China because of its currency exchange limitations.
Wilcox, a Harvard Business School graduate who was named Banker of the Year by the American Banker in 2008, faced three major obstacles to making his dream a reality: the economic value of onshore dollar investment is extremely limited; the 6-month-or-more wait to convert US dollars to Chinese RMBs; and finally, Chinese state currency regulations that require three years for a foreign bank to qualify to offer RMB service in China.
“The Chinese government has worked so hard to make RMB a valuable currency,” said Wilcox. “The good news is they have succeeded; the bad news is it makes it very difficult for us to help.”
The usual procedure for an investor who wants to invest in China is to register a business in an offshore location like the Cayman Islands, so that offshore dollars can be deposited. A bank would take such a deposit from offshore investors, make loans, and prepare to invest in China.
The bank, however, still has to convert offshore dollars to onshore dollars and finally to RMB.
“We have to find a way out since a bank that does not offer RMB investment is extremely limited,” Wilcox explained. “Most of our clients, Chinese technology innovators, deal with RMB only.”
Wilcox, who was named Entrepreneur of the Year by Ernst & Young in 2009 and 2010, soon found a way out.
“We took the initiative to cut the 6-month conversion time by working with a Chinese partner in Hangzhou named Uni-Power Group (UPG) to lend RMB to companies who are waiting for offshore dollars, converting them to onshore dollars, and then finally to RMB,” said Wilcox.
“Onshore dollars do not play any significant role in today’s economy,” Wilcox continued. “As a bank, we came to China for big business and big opportunity. We don’t want to be tied up with onshore dollars, and we don’t want to wait for three years.”
Chance brought Wilcox to Chen Anjie, Party chief of Yangpu district at the time and one of the most intense and passionate people Wilcox had ever met. Chen’s mission in life was to transform Yangpu district from a manufacturing base into a technology district. “We became instant friends and decided to help each other out,” Wilcox said.
Chen introduced Wilcox to key people inside and outside the government in Shanghai and getting a banking license, not an easy procedure in China, suddenly became doable.
Wilcox said it is very diffi to get a banking license in China. Establishing a joint venture with Pudong Development Bank made it easier, he said. Only a few American banks have physical locations in China and now SVB is one of them.
“We wouldn’t have achieved that without the help from Chen and the Shanghai government, the later has been very supportive in every step along the road,” Wilcox said. “We got the license to build a commercial bank in conjunction with Pudong Development Bank in 2011. By November 2012, our bank opened with full-fledged service with 65 employees.”
Striving to make a difference, Wilcox chose to fill the gap of serving small businesses in China, especially technology companies, while most of the Chinese and foreign banks are busy working with large companies.
According to Wilcox, SVB’s stake in its Hangzhou partner company UPG made it much easier and faster to raise money, invest, and make money for shareholders.
Wilcox emphasized SVB’s business model of working closely with venture capitalists from the US. “We bank over half of the venture capitalists in the US,” Wilcox said, “and most of our customers are VCs or technology innovators. We take pride in helping out technology innovators at their very early stage. If they don’t have VC investment, we help them find VC. “
Wilcox said their model is to balance equity and loan when it comes to investment on innovative technology firms.
“If a technology firm has loan only, I’d be watching them like a hawk and that is not good for their growth; if they only have equity investment from VC, it’s too expensive for both VC and the company. That’s why we work closely with VCs till our clients get acquired, and most of the time they do (get acquired). Most of our clients feel we are there to help them succeed.”
SVB’s global orientation is China and it will become a reality once Wilcox achieves his milestones one by one. He is now looking into shortening the 3-year restriction on RMB service through a “pilot program” working with companies that have been established into Zhangjiang Hi-Tech Park on grants from the central government.
In Silicon Valley, SVB interacts with local incubators to seek opportunities even before they cross the border and go global.
InnoSpring, one of the largest US-China technology startup incubators, facilitates SVB’s service for its start-up companies. “SVB is unique in the way that it plays an important role in every stage of a technology company, from startup phase to growth,” said Eugene Zhang, President of InnoSpring. “SVB contributes a great deal to the global startup ecosystem and is a strategic partner of InnoSpring for the US-China startup community.”
“One of SVB’s primary goals is to model our bank,” Wilcox said. “In other words, we want to establish a model other banks can copy. We want to bring cutting-edge know-how to those who want to follow.”
Shanghai is now Wilcox’s primary home, where he and his wife enjoy.
“It was a very good decision,” Wilcox said. “We have a great time in Shanghai. My wife loves Chinese history, culture, and art; when I have spare time I join her. We read a lot about China, visited museums, and learned a lot. It’s been a very good two years and we are looking forward to more.”
Colleagues at SVB use three words to describe their pioneering leader: courageous, intelligent and humorous. What cannot be conquered by such a man, they sometimes wonder.