A Conversation with Prof. Gao Xiqing

In the first of a series of podcasts recorded before a live audience in China, John is joined by Professor Gao Xiqing, the former Vice Chairman, President and Chief Investment Officer of the China Investment Corporation, the largest Chinese Sovereign Wealth. They discuss Prof. Gao’s extraordinary career from his early days building a railroad in rural China during the Cultural Revolution to earning his JD at Duke and becoming one of the first Chinese lawyers to pass the New York bar and work at a major Wall Street firm. Prof. Gao’s work on Wall Street led to him explaining, as a third year associate, the causes of the Black Friday stock market crash to Chinese business and government leaders. Later he was called back to China to design its first stock exchange and the Chinese regulator equivalent to the SEC. They also discuss Prof. Gao’s role in running the China Investment Corporation (CIC), one of the world's largest sovereign wealth funds. CIC invests only in private businesses outside of China, purchases less than a 10% stake in those companies, and splits its investments roughly evenly between publicly traded companies and private equity. Finally, they discuss Prof. Gao’s perspective on Sino-American relations. He believes that, viewed in perspective, the two countries have grown much closer since the days of the Cold War and that common cultural values, such as the drive to work hard and achieve, will lead to closer relations in the future. 

Podcast Link: Law-disrupted.fm
Host: John B. Quinn 
Producer: Alexis Hyde
Music and Editing by: Alexander Rossi

Transcript

JOHN: [00:00:00] Good afternoon. Thank you very much, uh, for coming here on this Sunday afternoon to hear, uh, Law Disrupted. We've never done this before with a live audience. Usually, it's just me, sitting at home, in my bathrobe, in front of the computer, imagining that there's an audience out there, and here, I'm really looking at a real audience, and, uh, So, no pressure, right?

But not only that, I'm sharing the stage with Professor Gao Shiqing, who's had such an illustrious, uh, and amazing career. He's a trailblazer in the development of China's financial and capital markets. He's served as the Hung Hung Chair Professor and Doctoral Supervisor at the School of Law, University of International Business and [00:01:00] Economics.

He's had several prominent roles, including President and Vice Chairman of the China Investment Corporation, CIC, Vice Chairman of the China Securities Regulatory Commission, We played a pivotal role in establishing China's first stock exchange. I'm gonna I don't want to embarrass you too much So I'm gonna actually abbreviate this He earned a Master of Arts and a Master in Law from UIBE before obtaining a Juris Doctor from Duke University School of Law in North Carolina That makes you a Blue Devil, I guess, huh?

Yeah, that's the mascot. Blue Devils. He was one of the first mainland Chinese individuals to pass the New York State Bar Exam and began his career as an associate at the firm of Mudge Rose, Guthrie, Alexander, and Ferndown, which was a very renowned law firm. After Richard Nixon lost the presidential election.

[00:02:00] Kennedy, Nixon went to the Maduro's firm. So that's the heritage

GAO XIQING: on condition that he wouldn't try to become president again. 

JOHN: Yeah. And then we know what happened, right? Uh, and then a professor gal returned to China to help shape the nation's securities markets. He was instrumental in drafting the Securities and Exchange Act and played a key role in establishing the CSR CSRC.

He was General Counsel and Director of the Public Offerings at the CSRC. He was then went on to be Vice Chairman and Chief Executive Officer of the Bank of China International Holdings Limited. He was appointed Vice Chairman of the National Council for the Social Security Fund. It goes on and on.

You've had an amazing career, and it's, uh, it's really an honor to share this stage here with you. 

GAO XIQING: The honor's mine. 

JOHN: Uh, you know, I'm really interested in, in learning how, at a young, as a young law student [00:03:00] in China, you ended up being one of the first Chinese lawyers to practice on Wall Street in New York, at a time when Chinese businesses and lawyers were almost absent.

In the U. S. and how that happens, and how did you as a young student in China find your way to the Duke Law School in the mid 1980s? 

GAO XIQING: That's my total serendipity. 

JOHN: Oh. 

GAO XIQING: It was not by design. No, in our generation, these people are also used to, they're worried about their job. We never worried about our jobs because we never had a choice.

We were always, ever since we were born, I was assigned to a kindergarten, assigned to a primary school, and then, of course, after primary school, the Cultural Ocean started, I was not allowed to do anything, so staying at home. I chose to read books and whatever I could get, but most people roaming around, you know, [00:04:00] traveling everywhere without paying anything, and it was a great time.

But of course, you know, after a few years, chairman Ma thought, well this is trouble. 'cause when you get to a teenage time and then you find no job and no income, then you started making trouble. So he said, okay, now we need all the people to go to countryside. So people, all these people, all probably parents of you guys, all went to the countryside.

And I was a mother, I was sent deep, deep in mountains to build a railroad. Xiang Yu Xian, uh, was, uh, a very difficult job, and even today, when you go there, you'll see, you don't see flat land, it's tunnels, bridges, tunnels, bridges, all the way through, deep in the Qiling Dabashan. You built those. You built those.

I was one of the million people building it. And I, I was one of the 4 percent of people who got injured and became a Disabled soldier. So I still have a, [00:05:00] uh, a certificate of disability. 

JOHN: Okay. Well, so, so this leads to somehow to Duke University Law School. 

GAO XIQING: Well, I was, you know, was again by serendipity. I, after the railroad, I got a job in an artillery factory making machine guns for the Vietnamese to fight Americans.

Yeah. Right. And then after that, I, you know, I was sent to Beijing to study foreign trade, English, and then after that, the Cultural Revolution, you know, ended, and then I got into, um, uh, graduate school. When I went to graduate school at the time, that was the first batch of graduate school in 1978. Before that, there was no graduate school.

And then they said, the party said, okay, we need these people to go to have further studies. I chose macroeconomics because I didn't like anything too practical because I wasn't never a practical person, even as of today. [00:06:00] So I chose that. That was, that at the time was called

The critique of bourgeois economics. So I got into that and got accepted. I took a national exam and scored number one. And so, so they took me. But after two months, The, the school's boss, which was the, today, the equivalent of the Department of Commerce said, no, we need some lawyers. So they need some lawyers.

They need some lawyers. So they, they established a new law department. I was the first student to be chosen there. They said, oh, you should study law. I refused. I said, no. I don't want to study law. They said, law is important. I said, nonsense, law is not important. My father was put in jail without any trial, getting out without any explanation.

Where's the law? The party secretary talked to me for two weeks, trying to persuade me to become a lawyer. I refused. Finally, he [00:07:00] chose number two person to go. After another month, he came back and said, Oh, we need another one. Would you please consider again? And finally, I got persuaded. I said, well, if I keep resisting the party's call, I may get into trouble later.

So that's how I got into law. 

JOHN: That's, that's very interesting that here you were a top graduate, you had graduated number one, and the party decided we need you to be a lawyer. I'm not sure that would happen today. Maybe it would. 

GAO XIQING: I don't know. Probably now I decide you guys should probably do something else.

JOHN: So you went to law school? He did the party's call and you went to law school?

GAO XIQING: I studied for three years and graduated. Then I was, uh, the school wanted me to become a professor. I stayed there. After a few months, the school said, well, we have an exchange program with the U. S., a U. S. law firm, Graham and James.

JOHN: Okay. 

GAO XIQING: Yeah, and, and, in fact, that was a, a conspiracy by Graham and James, because they were the lawyer for Clement Chen, who was [00:08:00] the chief investor of the first joint venture hotel in China, Jianguo Hotel, and they needed a lawyer. But China, in 1980, 1981, China would not allow any lawyer to come to China, so, so they say, well, they, they, they tried to be a professor, so they have the exchange, they invited me over to Graham and James as a foreign legal consultant.

JOHN: Was this in New York, or was it, I remember they were in San Francisco. 

GAO XIQING: That's the headquarters, so I went to their San Francisco office for a year. Um, but that year was the year they rotated me to DC office. 

JOHN: What year are you now? What year is this now?

GAO XIQING: That was 82. 82? Yeah, June of 82. And when I, I got there, uh, one day before my son was born.

JOHN: Okay. I'm, I'm guessing there weren't many Chinese lawyers in San Francisco at the time. 

GAO XIQING: I was the first one. There was only another one from Taiwan. We consider them Chinese lawyers, but he [00:09:00] wouldn't accept it. That was on the Li and Li. So you read Graham and James and During that year, I very quickly, I found that my, whatever I learned in China, thinking that it was international trade related commercial law, I found it Grossly inadequate.

I said, oh my god, you know, I didn't understand most of the things because I was working on several items, several projects, uh, including some, you know, something that the Asian Art Museum in San Francisco tried to bring all the exhibits from Shanghai to San Francisco. And then I was working on those things.

I said, well, many of the concepts I had to relearn, so I decided to go to law school. Then, um, in those days, you know, I have to apply to my school back in Beijing first, and then they said, well, uh, you can come back and we discuss it. I know once I, I come back and it won't happen again. Yeah. But, but then he said, well, I keep begging them.

And I said, well, we don't have the money anyway. I said, what [00:10:00] if I get scholarship? That, that was the first time I just heard that there might be scholarship. So they said, well, if you can get money, then you can go. So, so, lo and behold, I got a full scholarship from Duke, from Columbia. So then I went to Duke.

And you chose Duke. I chose Duke. Columbia hated me ever since. So they, they revenged, um, admitting my son. Right. So, 

JOHN: So that must have been, the English expression, uh, drinking from a fire hose. Right. You must have been drinking from a fire hose, just learning this experience. All my life. Coming from China, working for a U.

S. law firm in San Francisco, getting a scholarship to go study entirely different legal system in North Carolina, the other side of the country. This must have been. Amazing changes and amazing learning experience for you.

GAO XIQING: Hugely. Hugely. So when I came back to China, when I told my students how important these things are, how different these are, they sort of took [00:11:00] it as what I was saying.

But a few years after, when my, many of my students went to the U. S. and wrote me back and said, Hey, Professor Gao, I, you know, because I was telling them about the cultural shock I had. They said, I just have exactly the opposite. Cultural shock. How can the U. S. be so run down? Right. How can it be so bad? So inefficient?

I said, oh my god, what happened? So I realized that I grew up in a totally different environment. You know, grossly deprived environment, not enough food, always hungry, you know, very simple life, but these guys, these people all live, you know, or born with a silver or gold spoon in their mouth and they came out and they went to the U.

S., they found the U. S. really disappointing.

JOHN: But for you, what was the experience like for you, your reaction at the time? 

GAO XIQING: I was really, I was embracing the thing with the whole arms because I was, I was totally [00:12:00] surprised when I first got to San Francisco, that was the 19th of June, 1982, before I went to each person, when you go there, each person was allowed to change for three, a 30 Yuan worth of the dollars.

With 30 Yuan I went to, you know, Tiananmen Square, by the side, that was an old building, that's the Bank of China building in those days, with 30 Yuan I got 17 dollars, okay, that was the exchange rate. And then, before I went, there was a Prime Minister's lawyer in Beijing, and she told me, well, When you go there, someone is going to pick you up in San Francisco.

But in case they don't show up, I give you this address, you take a cab there. I said, how much is the cab? She said, um, not expensive. Forty dollars. Forty dollars. She said, what happened? I said, I only have seventeen dollars. She thought about it. She said, okay, I can lend you forty dollars. So she gave me forty dollars.

When I first got out, you know, [00:13:00] when you get out the, um, the San Francisco airport, That was the highway 101. That was this huge eight lane each side this that part I was just totally flabbergasted. I said, oh my god I never saw anything like not even in movies because we we got a chance to watch American movie about once a year 

JOHN: Let's let's jump forward to your first job on Wall Street.

What was that like working for a big Wall Street law firm? I understand the Wikipedia says you're the first Chinese lawyer who became a member of the past, the New York bar exam. Right. So pretty amazing. What was that like working in wall street, being the first Chinese lawyer, it's a member of the New York bar.

GAO XIQING: Well, I, I can, I can tell you just from an objective view, um, about about two years after I started, I needed to go back many of the partners. They're who I hated. Um, Try to treat me to lunch or dinner and they all [00:14:00] started singing praises to me. I was very surprised. I said, I knew these ruthless partners were so mean to us, right?

And, and this guy said, it's certainly one, but I won't name the person, but, but he said, you know, I was so impressed by you. I was the one to tell them to promote because each year we had, each year we had about 40 associates. I got a problem. Only two people got the highest rates. I got the highest rate. He said, I was the one to propose that.

I said, really? He said, I said, why? He said, because you are so effective and you are working all the time. I was, first, first year I built over 3, 000 hours. You know, there's, you know, 3, 000 hours. 

JOHN: That's a lot. Even today, today, that's a lot. 

GAO XIQING: When I got in, they said, it was, well, I said, how many hours are we supposed to build?

They said, well, 1, 600 is the standard, but if you, if you have only 1, 600, you won't stay in this firm. 

JOHN: Right.

GAO XIQING: I said, now how much? They said, well, at least 1, 800. [00:15:00] 

JOHN: Was it, was it isolating for you? You're the only Chinese lawyer there in this law firm on Wall Street. You're the first member of the bar. Did you feel isolated?

Did you feel welcomed? I mean, what was it like for you on a personal level 

GAO XIQING: on the personal level? I felt very I call it because I was I was working so hard. I was I was a conscientious Communist Party member So I said I would work in the same way. So I think people most associates really like me. Yeah Yeah associates are you know competitors?

Yeah But I think they like me, especially, you know, I was the first year and the second year, right? But when I try to get to my, get a job, I would go to senior associates, like fifth year, sixth year or partners. Cause every Friday, very often by, very often by three, four o'clock Friday afternoon, I would find myself without too much doubt because I'm finished.

So I would go to someone and tell her you have something the person look at the watch. Friday afternoon, [00:16:00] four o'clock, you want a new thing? Because they know, later I just found out, they say, that's a cliché, they say, by that time, if, if someone Goes to you and say, here is a piece of work you need to work, then, then your weekend is gone.

Right. I never had a weekend. You didn't know better. We communists don't, don't rest on long weekends. So I said, okay. 

JOHN: Did it seem to you like the other, honestly, did you think the other associates, did they seem lazy to you? No. These are people just not working hard. No. 

GAO XIQING: No? They, they, they work but But I, I did find a few people, sometimes they say, well, sorry, this weekend, I have to go to this place for, you know, for a wedding or for something, only one time during a whole two year time, I said, I went to when this partner came to me and said, he wanted this done by Monday morning, this Friday afternoon, very late Friday, I said, Oh, um, we're going, we're planning to go ski this weekend.

You know what he said? [00:17:00] Cancel it. Yeah. I said, well, I would love to cancel it, but the problem is that I'm the only driver for about 12 people. He said. That's not my problem. 

JOHN: Really? 

GAO XIQING: Yeah. 

JOHN: We could never get away with that these days. Right. The total balance of power has changed a lot. 

GAO XIQING: This person turned out to be a really good person later, okay?

At that time I really hated kidding gods. Right. So, what I did that day, that night, I went, although I told the people we can't go out Friday night. I said Saturday morning. So, Friday night, I worked the whole time, until Saturday morning. 

JOHN: You got the whole weekend's work done in one night, so you could take everybody skiing.

GAO XIQING: About 5 o'clock in the morning, I finished the thing, and I went out there, drove my van. We got all 12 people. 

JOHN: That might have been dangerous, you driving, sleep deprived like that. 

GAO XIQING: But I got so used to work overnight anyway, so. 

JOHN: So is that where you, I mean you became very important here in designing the securities exchange system here, regulation system here in [00:18:00] China.

Is that where you developed an interest in securities regulation working on Wall Street? 

GAO XIQING: That was part of it, but I wasn't was that came in only later I didn't realize because I never thought I would be working on that until October 19th of 1987 when you remember that time I was the major black Thursday, black Friday When when Wall Street had such a collapse that was the largest stock market crash since 29.

So that one day the market crashed by, by 23, 24%. And that to me was, you know, by noontime when I went in a little late in the morning, cause I always work until after midnight. So when I got in, I look around, I asked my secretary, I said, what happened? Someone died? She said, Oh, market crash. I said, What's that?

Because I, to me, market crash was not, you know, something, uh, very [00:19:00] special. She said, well, very serious, this huge crash, everyone was like, you know. So, so, during the noon time, I took my camera. I went on 'cause we were, Montreals, were on the, on the east side of, um, of Wall Street. I went to the west. I went to the stock mar stock exchange on the way I started taking pictures, then I saw some really hostile looks at me.

Mm-hmm. And then I, I put my camera back. Okay. I don't wanna get beaten. Not right. So that was a really bad time that day. Then that night I got a phone call that evening when I was working bad. Five, six o'clock in the afternoon, I got a phone call from the Chinese embassy because I, they used to call me for advices on all these things.

I always give them the free advices. And then this person said, okay, uh, Mr. O, can you come to, to the embassy to the, the consul general who later became ambassador to the UN said, [00:20:00] Mr. Tao wants to see you to explain what happened to the market. I said, Oh, 

JOHN: at this point you're in a social, like a fourth year associate or 

GAO XIQING: no, I was like the first, second year.

JOHN: I'm here to explain what happened on black Friday, 

GAO XIQING: right? He wants me to explain because they, you know, they needed somebody to know, right? I was the only Chinese lawyer there anyway. So I said, okay, when? He said today. I said, no, today we're really busy. He said, no, no, no, we really need you to come today.

And I know he said, I know, you know, a few people. Now I have two, three people, uh, Chinese friends working on wall street, one person, one woman working on, uh, New York stock exchange. As economist, first year economist and the one person, uh, in, in, uh, uh, the Morgan Stanley. And he said, why don't you call those people?

I said, Oh, today's a bad time. And they all said, please. So I will explain to you why, but you really need to come. So I called them. They all said, okay, we're going to go there. Have dinner. Cause I [00:21:00] love dinner at the Chinese embassy. They cook the best Chinese food. Those days in the Chinese food in New York wasn't very good.

So we all went there. When we went there, I saw, like, there's room for not this many people, but at least, like, 20 ish people. I was pretty surprised. I thought, I thought it was the Consul General. He said, no, those were all the leaders of Chinese embassies in, uh, Chinese enterprises in New York. And Hong Qi Zha, now you don't have it, and the Red Flag, People's Daily, Beijing Review, those days, those were, like, the propaganda ministry of China in there.

And they're all there. We explained to them. Later this guy told me, No, it's not the Consul General who wants to know it. It's the Central Committee. They sent, sent us a telegram. 

JOHN: Well, what did you tell them of what had happened? I mean, it's surprising to me that a third or second year associate would be able to, on a moment's notice, explain What happened on Black Friday?

What did you tell them? 

GAO XIQING: I know, [00:22:00] I know, you are, you are really doubting my ability in those aspects. No, I'm not! No, no, no, no. No, I'm not doubting it. You have, you have to understand. Your career speaks for itself. No, you have to understand this one thing. When I was studying on the railroad, uh, in college in China, I studied Marxist political economics many times.

I read Das Kapital by now at least five times, but that time I already read it twice. So I understand the whole Marxist view of what capitalism is about. The whole Marxist view of why the stock market would crash. So, we try to 

JOHN: But why that day? On that day it crashed.

GAO XIQING: I know we, that day, we already read all about that program trading.

If you remember those days, program trading came out not very long before that. And then everyone's blaming on that. Said, oh, program trading really, really exacerbated this problem, right? So I said, well, it's, that's probably the reason. And then [00:23:00] because of this, everyone who are trained to program, these programs came out of the same school.

So they all thought the same way. So once the one thing triggered, everyone goes in like dominoes, all the blocks, each block would have like a thousand chairs. So nobody could stop that. 

JOHN: At some point, did you get a calling to create a securities regulatory system here in China? 

GAO XIQING: No, actually, we called them.

That was, you know, I'll tell you the reason. After that, after that day, those fields said, Oh, this is really interesting. We need to have more of this lecture. After about two months in, uh, one month in November, we held a much bigger seminar in Columbia. With at least this many people, like almost 200 people in Columbia talking about the whole thing, the aftermath of this thing.

And then we, then during that meeting, we had two people who just came from China to the U. S. [00:24:00] study, and they were telling us about all the financial reforms, all those things. In China, China was really at that time was the whole thing was going on. Many people were studying to talk about these things, reform, commercialization of the banks, because the Chinese banks by that time, you know, there's a major four big banks.

We're, we're just cashiers of the, of the minister of finance. So in 1985, they sort of separated gradually, you know, making the thing, trying to make the commercial banks into real commercial banks rather than cashiers. So when we hear that and we thought, well, this sounds very interesting. And that. One thing happened that our friend, this guy, Wang Boming, who was working, uh, for the New York Stock Exchange had a brother, Wang Dongming, who later became the, the, the chairman of, uh, Citi Securities.

He was working in, uh, Canada. He went back to China for a few months, came back, came down that day. And then they called me very excited and said, [00:25:00] okay, you have to come over that night. That was somewhere in November. I went to their place. We talked for three nights. In a row. Why? Because one moment said people were talking about stock exchange, but nobody knows how to do it.

I said, that's exactly what we can do. So we started. 

JOHN: That became the goal, to create one. 

GAO XIQING: Create Beijing stock exchange. So we. 

JOHN: So you're, you're working at this point on a blank slate. There isn't an exchange. 

GAO XIQING: Then we formed a, formed an organization called the Council for Promotion of the Chinese Capital Market.

And that was attended by many Americans. Lawyers, uh, Vice, Executive Vice President of the New York Stock Exchange, uh, accountants, many people, 20, 30 ish people. We worked for about, over half a year, up until about May of, uh, um, 1988. And when we came out, it was saying, which we called, The white paper now is well known in China.

They all know history. This is called the [00:26:00] white paper number one. And then we came back in. Then we decided to come back to really proposals people knocking on every door. And so in the August, um, when we and I came back, we started really working hard on it. Then we got another. White paper, which is much more, um, fit for bureaucratic reading.

JOHN: So what, what was the model that you had in mind? Uh, did it start with what you had seen in New York and, and sort of adapt it with Chinese characteristics or, you know, sort of a top down, a government directed type of exchange system or market, how, how did you combine the elements of. What was necessary in China, but what you had seen in the West?

GAO XIQING: Very good question. First of all, the American model There's even not even the slightest doubt that the American model is the major thing because by that time I already collected over 40 countries secret [00:27:00] laws and regulations I just went out everywhere and then we got all these things together Realized one thing the United States was the first one to have this whole market Regulated, you know, from the blue sky laws in 1910, and then to 1930s, when you have the whole thing, 

JOHN: securities exchange act, 

GAO XIQING: and then that's where they, um, they, what we call the contradictions for the market, it became the most intense.

So, ever since you can, you just keep looking at the American model, you see, it, you know, of course it has, it has the American environment, but it has almost everything you can imagine. Would happen. Everything. I keep telling people, whatever happens, you think, oh, we invented that. No, nonsense. They invented it.

But of course, eventually, it would, you know, evolve into other things, but American model is definitely the major thing for us to look at. 

JOHN: How did you adapt it? And why did you adapt it? 

GAO XIQING: Right. One model we [00:28:00] had, it was, well, I don't know if you remember this guy, um, what's his name? It was a, a, uh, managing partner at Morgan Stanley, a former lawyer, my, my brain.

He, he went to, um, Poland, you know, now in the 1980s, uh, you know, in all these Soviet bloc people started to trying to think of, um, you know, new things, the reform. He wrote a, a sort of a sketchy securities law for them and said, well, you should set up this. He gave that to us because he knew that we're, you know, we're, we're, we're thinking about that.

He adapted the American model into a sort of a former Soviet planned economy thing. We look at it, oh, this is interesting. So we, we, we think of our way, we use some of that. Then, By the time we look at it, we look at the British law, we look at the Hong Kong law, the Taiwanese law, we found that there were certain things that were, was a [00:29:00] little more paternalistic than American way.

Now I said, well, maybe we should start from there. Because we know how paternalistic Chinese government is still for the Past 2, 000 years. So we needed to make it a little tighter, a little more restrictive. 

JOHN: Rely more on top down regulation. Right. You know, in the US system, of course, private enforcement is very, very important.

Maybe to a degree that people say abusive, plaintiffs, securities class actions. Whenever there's an IPO, stock goes down, somebody brings a lawsuit. I mean, in the, in the, in, did you consider having such a system where there's private rights of action and lawyers would really be The ones who enforce the securities laws.

GAO XIQING: Well, there are several stories on that. I could tell you the first part. When we started out, you know, in the first draft, I wrote all these things. And then Mr. Zhu Rongji, who by that time already became a vice premier, because we started helping him setting up the Shanghai Stock Exchange. He was the mayor of [00:30:00] Shanghai.

He only became the vice premier and we were supposed to write the law. And then one time he called me over, this draft in front of him, he said, well, I understand why we need accountants, right? Because, you know, all these numbers. Why the hell do we need the lawyers? And I look over, I saw he had crossed out that line, which says we need the lawyers to come out with a legal opinion.

I said, oh, this is very important. He said, why? I told him why. You know, it's a long story. You just have to, lawyers are, accountants will never be able to answer certain questions like true and false. You have to have lawyers. But, and then I said, by the way, you need more of these people tied up on this tree so that when people sue, you have more people able to pay.

Lawyers are rich as well. So he, he put all [00:31:00] the circles on. Download it, meaning restoring. That's how lawyers legal opinions become part of our law. Okay. But of course, you know, if you think about it, you have the litigation culture in the U. S., you have the overly litigious people and all that. That will always happen.

And by the way, Chinese people and American people are very much alike if you compare to Europeans to other people. I agree. For some reason. For some reason. We're both very, uh, work very hard and we're both very greedy. And, uh, and very practical. Right? So, so you have to work on from there. But right now, in the U.

S., people say, oh, overly religious. I say, in China, we haven't gotten there yet. We need to get at least halfway. That's why I have been advocating this, and in the past few years, finally, we are, recently, we just see the progress that CSRC and the High Court finally allowed [00:32:00] private class action. And private rights of action.

We always allowed Technically, we allowed private rights of action, but Individually, you know, they say they want to say class action. They say GT. So I've been advocating that for many years. They say collective action, which meaning each person would have to personally file something to the court. Who would want to do that?

20, 200, 000 people doing that. So finally now they allowed Someone some lawyer come out and say, okay, please come to me So long as you are not objective to it, then we are going to represent you. Finally We only have so far we only have about two cases. 

JOHN: Only two? 

GAO XIQING: Only two cases, but 

JOHN: Why is that do you think?

Because it's just too new? 

GAO XIQING: There are several reasons. The law, the courts are still not very, you know, not very. They don't understand. They're not embracing it. The Supreme Court agreed to that, but the lower courts still are very, you know, very suspicious of that. [00:33:00] Secondly, most Chinese people, you know, we just think, we say, How do you call it?

The, the, the typical Shenzhen culture would say, sa sa shui, which meaning, well, it's um, no, it's a loss, but why would you walk on, put that behind? I don't want to waste time on that. Most people still don't think, because they used to, over a thousand years, they have this habit, this, this thinking that the authorities, the court, these people, they are, they are, they are too, you know, uh, Too big for us to fight, so forget it.

I'll just do something else. 

JOHN: Now for IP, and IPOs, as I understand it, you've gone from a approval based system to a registration based system. And what, what is the background on that? 

GAO XIQING: Every people ask me that, uh, every time when they had any change, sort of saying, oh, we congratulate ourselves by having this change of system.

I always say that's bogus. 

JOHN: Why? 

GAO XIQING: Right? Because even as today, you know, for those [00:34:00] lawyers, I don't know if you have lawyers here, those lawyers who work on that, you know, the so called, um, you know, um, uh, registration system, it's not really a registration system because, you know, when I was at Maduro's, I used to go to Washington, going to SEC to file all the time.

I tell them how that works, but here, you, you, you send it to the CSRC, but they hang you up there for three years. You know, you have to go through all these things in order to violate the the law. Pass registration. It's not registration. It's approval. It's a meritorious approval. It's it's it's everything else but not registration system So, you know, uh about a half year or a year ago when when uh, csr came out of the stock and says Okay.

Now finally we have a champion the two searches All out registries system just that day. I saw Someone, I won't say who, someone from the CSRC, a higher [00:35:00] person, I said, is it real? He said, no. That's all. So, so I think the important thing is not what you call it. It's really in essence how you do it. That which is not allowed is not prohibited.

That's the thing. Now the, the stinking is still that which is not prohibited. You know, that which is not allowed, is prohibited. Yeah. That's still, you have to, 

JOHN: that's the mindset turn. If it's not ly allowed, it must be prohibited.

GAO XIQING: Exactly. Mm-hmm . The negative list way of doing things. 

JOHN: Yeah. I So you think there's room for improvement in terms of the IPO hugely registration regulation?

Hugely. How, what, what, what, what's your thinking? What types of. improvements would you like to see? 

GAO XIQING: Well, that's, that's one of the most important part. If you allow people to openly registrate, then you assume as the, as the regulatory commission, you assume [00:36:00] that they are telling you all the truth. But of course you can look at it like the SEC, you look at a thing within a certain Time not like them for three years, but say within 20 days or you can say, well, we, we, we, we don't work as efficiently as Americans, which is untrue.

But if you say we give you 30 days or 40 days, if we don't say anything, you can just go to the issue. Then. Then, but, we, since your paper is here, this is in Chinese, we say, liu ci cun zhao. If, if whatever you said here is untrue, we find out, then you're in big trouble, right? 

JOHN: You're in big trouble in the U.

S. because you'll get sued. Right. There's a whole plane of securities.

GAO XIQING: But here, you know, we have a much heavier punishment. You're not only getting sued, you'll get arrested and put in jail. 

JOHN: Right. That's pretty serious. Right. That can happen in the U. S. too. So let's talk about, uh, the China Investment Corporation.

You, you had responsibility for The [00:37:00] China Investment Corporation, one of the world's largest sovereign wealth funds. Uh, you know, it's, what, what has been the goal of the, and has it changed over time, of the China Investment Corporation as a sovereign wealth fund? 

GAO XIQING: Well, in fact, um, the, the, the first time when people started talking about it, when the state council, central committee started talking about it, was very much under the pressure of Americans, Europeans.

Why? Because at the time, that was in, I think it was around, you know, early 2000, you know, a few years after, um, we joined WTO, all of a sudden, you guys found that, oh my God, the Chinese are so efficient, they got all of, all of a sudden, they just took all the markets and do everything, and so the Chinese, um, foreign exchange increased exponentially within a very short period of time.

So they said, Every, every year we have this like bilateral, multilateral dialogue. I [00:38:00] personally attended a few of them. And they said, you have to buy something from us. Our, our reason at the time was always, well, we want to buy your high tech things, you don't allow us, you know, military things, right? Yeah, you won't allow us.

They said, but you have to buy other things, you know, you can't just do that. So finally, the central government said, because By the time they started discussing it in 2006, around 2000, yeah, around 2005, 2006, our foreign exchange reserve already, uh, reached beyond, reached beyond, uh, one trillion. By the time we were established, it was already beyond two trillion, within the, you know, two, three years time.

So, so the central government discussed about it, they want to set up something which would take Part of the foreign exchange reserve out, put into this CIC as I wasn't called, was called foreign exchange management company. They say, you can spend that money. So we don't have to put it into our foreign exchange reserve.

So people would look at it with a, you know, [00:39:00] sort of more in the way. That's how we started. So when we first established, every time in any meeting in the central committee and every ministry, you know, in the commerce or, or finance or central bank, when they see me, I always say, don't put any money in China, take it out.

So we are allowed only to invest in foreign countries, not a penny coming back to China. So that's how that was set up. Because they don't want it to appear on our balance sheet. 

JOHN: And so what kinds of investments in the beginning did the CIC make? I mean, was it like a model like the, in Singapore you have Temasek and GIC and you have these major sovereign wealth funds.

In the Middle East, like Mubala and PIF. 

GAO XIQING: We, we look at all these, um, uh, models, uh, and in Norwegian, and we, we, we had several rules, you know, since we were not allowed to invest inside, because GIC and some of those, those, [00:40:00] uh, Norwegians say they were allowed to invest in their own country, some, uh, most of these, but we, we, for that reason, we just, we won't allow us, we, we can only invest in ourselves.

Secondly, We believe that, you know, when I was first called in, they asked me if I would like to do it. I said, you know, if I have a choice, no, I'm not interested. Why? No, I'm not interested in, I don't have enough confidence in running a state owned enterprise. Cause my whole family came out of the state owned enterprise.

It's inefficient and it's bureaucratic and it's going to lose money. So they say, well, but while, you know, if you have to do it and not do the, I'll say, well, we set up certain rules. The first rule is that we are supposed to be a passive investor, financial investor. We're not going to take any active investment, trying to realize what we call the state strategy.

No, we, we are only going to be, uh, you know, we're, we're not going to raise red flags to any country's government thinking that we're going to take over [00:41:00] something there. So our goal was to put at most 10 percent in any investment. 

JOHN: So you took just minority stakes? 

GAO XIQING: Minority. 

JOHN: And private businesses outside of China?

GAO XIQING: Right, that was, that was later. Private business was coming out later because we needed to decide whether or not we want to become a Just really pass it with only only investing in open market or in private market because that's more risky So we we started for six months for with all these many of you know Major international firms sent us SL allocation proposals many we got about ten of those We study all of them.

So we decided that we would probably put up about about 50 percent of our money into Private party into in those days called alternative investment. The other half into open market in open market. We have it one third in the US, [00:42:00] one third in Europe, and one third in other parts of the world. But later, we find it very difficult to do.

Because you know, the US at a time, the US market accounts for about 60 percent of the whole world. Transcribed Capital market now is 70 or 75. So you can see that whole dynamic So we basically saying okay, we for for for money that we haven't fully investigated We all put in the backlog the backlog is US market Basically, the European market is not that even investable sometimes.

JOHN: What kinds of private companies does CIC invest in? 

GAO XIQING: Well, first of all, 

JOHN: setting aside the public You know what you're talking about, equity markets. 

GAO XIQING: But you know, we, because of our size and because of all the restrictions, we set up a rule which says we, for we have to, in private companies, we have to, for each, for the size of each company, we have to invest for at least one $100 million.

'cause otherwise it's not worthwhile time. But [00:43:00] if it's $100 million, then that company would have to be worth at least a billion. Right. Because we only invest 10%. So that was, so, so in, I think it was 2009 or 2010, uh, 2010, I was invited by Elon Musk to look at his company at the time. He had only three cars in his company and I had a few, uh, workshops and I spent a whole day with him.

Um, and, uh, he explained to me why his, his car is better than others, which I didn't understand. And then I drove his car with him on my side on the California highway for about an hour, and I drove about 120 miles per hour. And then he said, you do have a driver's license, do you? Because when I got on, I said, I don't have a license.

He just smiled. But when I was really driving, he saw how I drove, he said, You do have a license. I said, no, my license expired a long time ago. And then [00:44:00] I said, don't worry about it. Um, the police will not arrest me. He said, why? I took out of my diplomatic passport, 

JOHN: right? You 

have a license to 

speed. 

GAO XIQING: Right.

And I said, if they arrest anyone, they will arrest you. And he wouldn't even take that as a humor. He got really pissed off. 

JOHN: So on top of everything else you've done, uh, you established one of China's first law firms, as I understand it. And then you left after the first day. It's something. How does this happen?

GAO XIQING: I'm still suffering from that as of today because, you know, I do arbitration from time to time, you know, arbitration lawyers or would always find some problem with the party, then they, then they always always look at and say, okay, they have a problem with me because, um This law firm was somehow doing something.

So now, whenever I saw Haiwen, I'm saying, I said, I, uh, I don't want to be that. Even though I've never worked [00:45:00] one day, I never got one penny from this law firm. Why? Because when I, when I started, you know, when we were, when we finished the two stock exchanges, we didn't have anything to, so we started out doing consulting work.

And then the, the, the minister of justice found me. I said, oh, we would like to have you to head our, the only Chinese law firm outside of China, which is called the China Legal Affairs Office in Hong Kong. At that time, that was in 19 

JOHN: Hong Kong is part of China, by the way. 

GAO XIQING: At that time, not even coming back, it was in 

JOHN: That was a joke.

GAO XIQING: I think around 1992, 91, 92. So we said, um We would like you to have that. I said, why do I want to do that? He looked at me. He said, Oh my God, everyone in the Justice Department wants to become that. Because first of all, you get, you got paid many times more than in back here. Secondly, you know, working there is so easy because you are the [00:46:00] only monopolistic office there.

Um, everyone would have to kowtow to you to get, uh, um, notary public to get everything from there. I said, no, no, no, I, I, I come back to work here in Beijing, in China, in Hong Kong, you can have anyone else work. He said, but we think you're capable. I said, many people will be capable to do that. But no one would be capable as me to try to set up this subconstitution.

He looked at me. He said, oh my god I haven't thought of that. He said, but can I do something for you? I said yes, because by that time I, China had only three law firms which were sort of experimental partnerships. And, and they approved it as an experiment about three years before that. By 1992, no one, you know, they said they would never want to approve anymore.

I said, can you approve a law firm for me? 

JOHN: You were asking.

GAO XIQING: I asked him. He picked up the phone immediately, called the Justice Department of Beijing. I said, [00:47:00] okay, get him a So within, within a month, we got a license. But within that month, I got a call from those people and said, they forced me to, to go to the CSRC.

JOHN: So you started the law firm, but worked there a day or two. 

GAO XIQING: So I never worked there. I, I constantly disavow my relation with that firm. But, you know, you can't do anything about it. 

JOHN: I would take credit, you know. But I got You're a founder of a private law firm business in China. 

GAO XIQING: I got a letter from Richard Nixon.

Congratulating me for setting up my law firm. 

JOHN: There you go. 

GAO XIQING: That firm still has that letter posted up there. I said, please don't put it up there. That's nothing to do with me. Okay. 

JOHN: You've had such a, uh, amazing career, uh, you know, studying here, succeeding here, becoming a lawyer, going to San Francisco, working with Graham and James, becoming a Blue Devil, going To Duke University, Mudge Rose, going [00:48:00] back, establishing a securities regulation framework, heading up the Sovereign Wealth Fund.

You've had an amazing perspective on relations between China. Is it worse now than it's ever been from your perspective? Where do we go from here? Do we have hope? What are your thoughts about the future of the relationship? 

GAO XIQING: I don't think it's worse today than the time when I was. So, you know, when I was building the railroad, one day we got this document reading.

Which says, okay, very seriously, everyone's sitting there, they say, now, the central committee decided to allow Richard Nixon to visit China, and he's the head of the biggest capitalist country, and he, the reason he wants to visit China is because He wants to become the president during the, you know, 200 millennium, uh, the, the, the, the 200th anniversary of the United States.

Uh, we, we allow him to [00:49:00] do it and had all these political things on it. And at that time we, you know, we're so shocked. We were so surprised because by that time Americans were just our arch enemy. We're against everything. I was, by that time, I was listening to The Voice of America each time, secretly, because we, we bought this radio, which I would bring, each time, only one person or two going out, because we live in the mountains, on, on the slope of the mountains, there were Graveyards.

And in China, people believe graveyards are, are not, you know, not good. So, at night, we would go there, and nobody, I would listen to Voice of America because it offers one program called Special English. So, I listened to Special English. But, if I got caught, that's punishable by one to three years imprisonment.

Because we can't really see this big post, which says, you know, guilt of listening to anime

radio. Voice of [00:50:00] America, BBC, Radio Moscow. These are all, and Taiwan, the Voice of Freedom. So these stations were all, if I got caught, I got caught. So that's how that was, but all of a sudden we turned around and said, Okay, now we can listen to it. So it's, to us, it's a big thing. Today, you know, you guys are, you, you guys are on things American, on, on things capitalistic every day, right?

You can sit here. In those days, you can't sit here, right? So this is not where, this is so much better than those days. So, and as I said, this too will pass. We eventually, Americans and Chinese are very alike in many ways, and there are so many things we are in common, and there are so many things we like, and so many things we strive for, so I don't think we should be enemies, and I don't think we will be enemies.

JOHN: No, I agree with that. I hope. Here's hoping that President Trump, second time around, turns out to be a real [00:51:00] statesman that we don't know we will see well, we hope so too. So thank you very much. Thank you.

for listening to law disrupted with me, John Quinn. If you enjoyed the show, please subscribe and leave a rating and review on your chosen podcast app to stay up to date with the latest episodes. You can sign up for email alerts at our website, law Hype Disruptive fm, or follow me on x at JB Q Law or at Quin Emanuel.

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