June 17, 2019 / 3:43 AM / 4 months ago

Breakingviews - UBS sets a troubling precedent in China

FILE PHOTO: Pigs are seen at a family farm in Fuyang, Anhui province, China December 5, 2018. REUTERS/Stringer/File Photo ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.

HONG KONG (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.

A regular podcast by Paul Donovan, UBS Global Wealth Management’s plain-speaking chief economist, included a comment last week on China’s devastating swine fever epidemic and its effect on pork prices and food inflation: “it matters if you are a Chinese pig”. The statement, in part because of an ungenerous translation, was interpreted in some quarters as a racial slur. Given the opportunity, competitors jumped. The Chinese Securities Association of Hong Kong demanded UBS sack Donovan, and dismissed his apology as “insincere”. Haitong International, the brokerage run by the association’s president, severed ties altogether.

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.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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