After 10 years at the helm of the Hong Kong Stock Exchange, chief executive Charles Li made the surprising announcement last week that he is stepping down.
“I’m already the longest-serving chief executive of [HKEX], so I think it’s time to make a change. It’s time for the board to begin looking for the next generation,” Li, 59, told Fortune on Wednesday, in his first public interview since the decision.
Li’s contract runs out in October 2021, and he said he is committed to leading the exchange until either that time or until the HKEX board finds his replacement. But in the meantime, he will face one of the most challenging periods of his tenure as COVID-19 wreaks havoc on global financial markets. The HKEX is unique in that it regulates exchanges, performs clearing services, and operates as a private company whose shares trade on its own exchange. The Hang Seng Index, which measures the performance of the top companies on the HKEX, is down roughly 16% for the year, compared with 18% for the Dow Jones industrial average. HKEX revenue declined 7% in the first quarter year over year, while profit declined 13%.
In navigating this new environment, Li said that Hong Kong and China’s ability to reopen more quickly than Western peers means the global economic recovery will likely stem from Asia.
“[China] and the U.S. seem to be running on a very different clock, different logic, a whole different operating system,” Li said. “That difference is going to count a lot on how the global recovery is going to be. Because it’s not going to be universally similar, it’s going to be very different.”
But even if China leads the way, he said its long-term success will depend on foreign markets recovering from COVID-19.
“China has a huge vested interest in everybody else succeeding because otherwise [the virus] will come back to China,” given the global nature of today’s society, he said.
But that shared interest hasn’t materialized yet, at least in public forums. Rather, the virus has escalated tension between the U.S. and China, repositioning Hong Kong in the world’s business ecosystem, as the resurgent anti-Beijing protest movement threatens the city’s long-standing status as an open, free gateway to China.
“From a relative importance perspective, [Hong Kong] will probably become more important,” said Li. As China and the U.S. drift farther apart, Hong Kong’s role as a bridge—facilitating communication and business between the two powers—is more vital.
At the same time, Hong Kong is subject to China’s growing influence. In recent weeks, Hong Kong authorities have arrested 15 veteran anti-Beijing activists, and China’s government liaison office to Hong Kong said that Beijing is not bound from interfering with local affairs in the city.
As head of the HKEX, Li’s position in these matters is especially precarious. On the one hand, Hong Kong markets are trusted by international investors, owing in part to the city’s relative autonomy from Beijing and its independent legal system. On the other, the HKEX is deeply tied to China, as roughly half of its listed companies are from the mainland.
Li concedes—albeit delicately—that Hong Kong’s existence in the future will differ from how it has operated in the past. “Whether or not we are as free, we are as open, we are [politically as we were before]…Are we going to have to scale back certain things that we were used to before? Clearly, we are all going through that process,” he said. Nevertheless, he still considers Hong Kong an important intermediary.
In fact, Li embodies that role, seeing himself as a “translator of trust” between mainland China and Western markets. He’s uniquely suited for the task, given his upbringing in China and earlier career working for U.S. banks.
Who is Charles Li?
Li grew up in China’s northwestern Gansu province amid the turmoil of the Cultural Revolution and was put to work on an offshore oil rig at age 16. He later studied English literature at a Chinese university and worked as a journalist for China Daily, a state-run English-language newspaper, before heading to the U.S. for graduate school in 1986.
He graduated with a master’s degree in journalism from the University of Alabama in 1988, but quickly switched paths and enrolled in Columbia University’s law school that same year. After law school, Li worked on Wall Street as an investment banker for Merrill Lynch, and eventually became head of the company’s China division in 1999. In 2003, he became chairman of J.P. Morgan China and led the bank’s China operations for six years.
Li took the job of HKEX chief executive on the heels of the Great Recession in January 2010. During his tenure, HKEX’s revenue has more than doubled to $2.1 billion in 2019. Li is the first mainland Chinese national to run the exchange, and has turned HKEX into the most attractive initial public offering market in the world; it’s been the top IPO destination for seven of the past 11 years.
Li’s success has come, in large part, from his efforts to maximize Hong Kong’s proximity and ties to China; to connect global investors with mainland companies. In 2014, Li helped launch the Shanghai–Hong Kong Stock Connect, allowing investors in each exchange to trade shares on the other’s market. In 2016, he spearheaded a similar scheme to connect HKEX with the Shenzhen stock exchange. And last November, Li helped lure Chinese tech giant Alibaba to list on the HKEX. Alibaba originally listed in New York in 2014, but chose to do a secondary listing in Hong Kong after Li spearheaded efforts to reform HKEX so companies with dual-class share structures could list on the exchange. The offering raised $11.2 billion and smashed the record for the exchange’s largest-ever listing. For his efforts, Li has earned the moniker “Mr. China.”
New challenges
Li’s ambitions, however, have not always born fruit. Last year, HKEX made a $36 billion bid to buy the London Stock Exchange, the highest-ever offer for a stock exchange. The offer was quickly rejected by LSE’s board.
Even with the failed bid and his own tenure coming to a close, Li said that future acquisition attempts are not out of the question: “When you make efforts like that, you don’t just one day say, ‘Oh, nice one,’ and it’s over.”
Still, he said, COVID-19 will likely delay any additional acquisition offers for the time being. The coronavirus crisis has shifted focus to issues like speeding up the IPO process for companies listing on HKEX. Li noted that it currently takes an average of six days between IPO pricing and trading in Hong Kong, whereas the same process in the U.S. takes one day.
He’s also confident the IPO pipeline of Chinese companies listing in Hong Kong will remain robust as China’s economy emerges from the pandemic. In fact, Hong Kong may become a more attractive option for Chinese companies as they face new pressure in the U.S., he said.
In recent weeks, American authorities have increased scrutiny of Chinese companies listed on U.S. exchanges after it came to light that Luckin Coffee, a Chinese coffeehouse chain listed on the New York Stock Exchange, recently fabricated financial results.
“Americans will be best served if Chinese companies are allowed to succeed there,” said Li. “But if in the short term, for whatever reason, they are not welcomed, we always welcome that.”
However, he isn’t encouraging companies with poor governance to list on HKEX, calling Hong Kong’s regulatory climate “robust.”
“For bad apples, we should all be collectively united to deal with it, so that there is no regulatory arbitrage that people can take advantage of,” he said. “But for good companies, everybody should welcome them.”
In an office overlooking Hong Kong harbor on the 50th floor of the HKEX office building on Wednesday, Li pointed to several statues of bulls displayed on shelves on one wall. He said the bulls, which symbolize the growth of financial markets, were gifts from various companies and investors.
The one-sidedness of the display is not lost on the executive who’s spent a decade at the fulcrum of East versus West.
“Why does everyone only give us bulls?” Li joked. “Sometimes we also need bears.”
This story and video are part of Eastword Connect, a series of conversations on matters of business, tech, and finance with executives, experts, entrepreneurs, and investors in Asia. Subscribe to Fortune’s Eastworld newsletter to get them in your inbox.
