Morgan Stanley's hope of raising $1 billion through these equity stakes seems to have come to nothing. The management team led by James Zhu has quite a bit of bargaining power, and this is not merely because Morgan Stanley can only take new actions in China after selling these stakes. Moreover, it is precisely because of James Zhu's relationships that make CICC so valuable.
A partner representing the second private equity firm interested in CICC said, "CICC has one unique advantage." This advantage lies in listing state-owned enterprises. To win the underwriting and sponsorship mandates of these enterprises, the most important thing is to establish relations with key government and party officials — and James Zhu possesses a large number of such connections. A former CICC employee said, "When he met provincial leaders, he met officials who used to work for his father. He makes money relying on his father's influence."
There is no denying that James Zhu has built a business and made money for shareholders, including Morgan Stanley. Morgan Stanley's initial investment of $35 million has at least tripled, yielding substantial returns. Not only does James Zhu know how to win mandates, but he also knows how to exercise these powers. He has become an expert in creating profitable companies from the rigid carcasses of state-owned enterprises.