A10| Thursday, December 3, 2020 THE WALL STREET JOURNAL.
Larry Fink, chief executive of BlackRock, extolled China’s business potential via video link at a Shanghai forum in June.QILAI SHEN/BLOOMBERG NEWSSoftware gave a 76% likelihood that the photo on the right is of
Graf Dalton, an outlaw whose verified photo is on the left.out its January promises, ac-
cording to people close to the
industry. No group focused on
banks and asset managers
signed the letter.
Chinese leaders have time
and again turned to Wall
Street for assistance in peri-
ods of trouble. In the late
1990s, when big Chinese banks
struggled with bad debt, then-
Premier Zhu Rongji asked
American investment bankers
including former Treasury
Secretary Hank Paulson, a ris-
ing star at Goldman Sachs at
the time, for help.
Mr. Zhu backed the Ameri-
cans’ plans to sell to U.S. firms
stakes in the country’s biggest
four state-owned banks, whose
total assets, he said then,
“couldn’t even match those of
one single U.S. bank, Citi-
bank.”
As part of the concessions
negotiated by Mr. Zhu for
China’s entry into the World
Trade Organization in 2001,
Beijing agreed to liberalize its
financial sector. But American
banks, brokerages and others
had to settle for being bit
players. Foreign firms ac-
counted for just around 1% of
China’s banking sector in the
first quarter of 2020, accord-
ing to research firm Cerulli
Associates.
Chinese President Xi Jin-
ping came to power in 2012
promising to give markets a
bigger role in the economy.
But he was deeply shaken by
the chaotic summer of 2015,
when plunges in Chinese
stocks drew global attention,
and put further market liberal-
ization on hold.
The trade war presented a
new opportunity for Wall
Street. Throughout the battle,
Chinese leaders counted on
Stephen Schwarzman, the bil-
lionaire co-founder of private-
equity firm Blackstone Group,Mr. Paulson and John Thorn-
ton, another former Goldman
senior executive, as go-be-
tweens with the Trump ad-
ministration.
After the February 2018
meeting, Mr. Liu turned to Mr.
Fink and BlackRock for ideas
on how to remake China’s pen-
sion system as a rapidly aging
population threatens massive
shortfalls in the years ahead.
Mr. Fink didn’t have the
roots in China that some of his
Wall Street peers did, but he
kept pushing the idea that
firms like his could play a
helpful role in the country.
Accepting an award from
the National Committee on
United States-China Relations
at the Grand Hyatt New York
hotel in November 2018, he
talked about how the two
countries’ “fates are inter-
twined.” As executives dined
on filet mignon with former
Secretary of State Henry Kis-
singer and Chinese Ambassa-
dor Cui Tiankai, Mr. Fink
praised the Chinese govern-
ment for having lifted large
parts of the population out of
poverty. He acknowledged that
many in China are still poor,
and said modern financial
markets could help China with
its long-term objectives.
While in Beijing in Novem-
ber 2019, he made a pitch forhis giant asset manager to
China’s top financial regula-
tors and executives. He told
them BlackRock should be a
Chinese company in China, ac-
cording to people with knowl-
edge of the matter.
Even if such talk was stan-
dard Fink—BlackRock should
be a German company in Ger-
many, a Mexican one in Mex-
ico, and so on, he tells audi-
ences when he travels—to his
Chinese hosts it was a wel-
come contrast to the hostili-
ties from Washington.‘China ambition’
“Larry Fink wears his China
ambition on his sleeve,” says
Peter Alexander, managing di-
rector at Z-Ben Advisors Ltd.,
a fund consulting firm in
Shanghai.
BlackRock, like many other
big asset managers, can’t af-
ford to ignore China. At home,
the market is saturated and a
fee war is eroding profits. As
BlackRock’s index-mirroring
funds have knit more inves-
tors’ returns—and the firm’s
fortunes—more closely with
China, they have become con-
duits for greater Chinese inte-
gration in global markets.
“I continue to firmly believe
China will be one of the big-
gest opportunities for Black-Rock over the long term, both
for asset managers and inves-
tors,” Mr. Fink said in a March
letter to shareholders, “despite
the uncertainty and decou-
pling of global systems we’re
seeing today.”
“U.S. financial institutions’
expanding in China is consis-
tent with the policy goals of
the U.S. government,” Black-
Rock said in a statement. “A
local presence in the world’s
second-largest economy will
help us better serve clients in
the U.S. and around the world
as they save for long-term
goals like retirement.”
Mr. Fink, 68 years old, got a
first taste of China’s potential
in 2006, when BlackRock’s ac-
quisition of Merrill Lynch’s as-
set-management business gave
it a 16.5% stake in a venture
with Bank of China. The stake
has risen in value to about
$400 million from $4 mil-
lion—a return of some 38% an-
nually, estimates Mr. Alexan-
der of Z-Ben.
In the early 2010s, Mr. Fink
urged internal task forces to
aim for China. “The idea was:
Many clients come to Black-
Rock because they want global
exposure. We need and should
be in China,” said a person
close to the firm.
Over the following years,
BlackRock was influential inChinaTaiwanSouthKoreaOthersIndiaBrazil
SouthAfricaMalaysiaThailand
SaudiArabiaRussia1007550250%June2017 Dec. June’18 Dec. June’19 Dec. June’WeightingforBlackRock’siSharesCoreMSCI
EmergingMarketsETFChina’sasset-management
industryForeignparticipationin
China’sasset-management
industry
3% ’ ’†Chinahasbecomeabiggerpartofmajoremerging-markets
indexes,andthecountry’sasset-managementindustryhasgrown
rapidly,evenastheroleofforeignfirmshasremainedsmall.
$trillion ’ ’ ’**As of June 30 †For the first quarter
Note: Weighting data as of final trading day of the month
Sources: CFRA’s First Bridge ETF Database (weighting); Oliver Wyman analysis (industry); People’s Bank of China, Wind (foreign participation)Old Photos
Test ID
Software
FROM PAGE ONE
Goldman CEO David SolomonTAKAAKI IWABU/BLOOMBERG NEWSrejected the offer as too nar-
row and sent the Chinese
packing.
But Mr. Liu didn’t go home
empty-handed. The get-to-
gether helped turn Wall Street
into one of the biggest cheer-
leaders for a deal. In the trade
agreement that was eventually
signed in January, China’s fi-
nancial opening stood out as a
prominent concession.
America’s money men have
long held a special place in
Beijing’s corridors of power,
but until now their firms have
had little to show for it. The
Trump administration has
tried to “decouple” parts of
the two economies—a direc-
tion that President-elect Joe
Biden would have a hard time
reversing and may embrace.
The broader U.S. business
world also has soured on en-
gagement with China.
Wall Street, however, is go-
ing all in. Since the signing of
the trade deal, JPMorgan will
get full control of a futures
venture in which it had a mi-
nority stake. Goldman Sachs
and Morgan Stanley became
controlling owners of their
Chinese securities ventures.
Citigroup Inc., meanwhile, won
a license to act as a safe
keeper of securities held by
funds operating in the country.
And in August, BlackRock
became the first foreign firm
to win preliminary approval to
start a wholly owned mutual-
fund business in China, a po-
tential ticket to a vast market
of largely untapped mom-and-
pop investors.
Long march
Despite the burst of activ-
ity, skeptics wonder whether
Beijing will ever let Wall
Street gain more than a foot-
hold. They note that by delay-
ing an opening for decades,
the Communist Party has en-
abled Chinese institutions it
largely controls to thoroughly
dominate every sector in fi-
nance, from commercial and
investment banking to private
equity and asset management.
Wall Street firms have little
name recognition among aver-
age Chinese savers.
As late and as limited as
the opportunity is now, for-
eign financial firms are happy
to get whatever perch they
can: China is still the world’s
fastest-growing market for fi-
nancial services, at a time
when their own margins are
getting squeezed at home.
Their long-term lobbying
efforts—including taking Bei-
jing’s side in some heated dis-
putes with the West—reflect
their eagerness to crack the
market.
In July, more than 40
American trade groups, repre-
senting industries from agri-
culture and pharmaceuticals to
airlines, signed a letter urging
Beijing to do more to imple-
ment the trade deal, which
also laid out purchases of
American airplanes, farm
products, oil and others that
China hasn’t yet made in full.
Unlike other business
groups, Wall Street is pleased
with how China has carried
Continued from Page One
tions ago by face recognition
is almost always a non-
starter,” he wrote back. “It’s a
very long shot that these por-
traits are of the Daltons.”
Facial-recognition technol-
ogy, commonly used to unlock
phones, open doors and even
surveil the unsuspecting pub-
lic, is roiling the world of an-
tique photograph collecting.
Hobbyists have turned to fa-
cial-recognition software to
try to match faces in found
photos to those of famous his-
torical figures.
Antiquities brokers, auc-
tioneers and historians, how-
ever, say such methods aren’t
dependable, and that the tech-
nology has loosed a flood of
bogus claims about the identi-
fies of people in ordinary old
photos. Hobbyists interested in
the 19th century American
West have surfaced with
Continued from Page One
claims about newly found pho-
tos of the bad guys like Billy
the Kid and Jesse James and
famed lawmen such as Wyatt
Earp and Pat Garrett.
Daniel Buck, a writer
at True West magazine, has
two boxes in his attic of what
he calls “bogus photos,” sent
in by amateur collectors, some
of whom used face-matching
technology. He once tried
some facial-recognition soft-
ware himself. “It confused Wy-
att Earp, George Custer, Pat
Garrett and Ringo
Starr,”hesays.
Mr. Rodman and
other part-time col-
lectors say the ex-
perts are Luddites.
“They don’t trust
new technology,” he
says. “They’re always
skeptical.” He
shopped his Dalton
brothers image to
other experts in the
field, including edi-
tors at Old West magazines
and a history professor at
Stanford University. Most said
it probably isn’t the Daltons.
“Facial-recognition technol-
ogy is hogwash” when it
comes to old photos, says Kurt
House, a broker of Old Westmemorabilia in San Antonio.
The software works by mea-
suring facial landmarks such
as the nose and mouth, turn-
ing them into a “face-print,”
then comparing it with others.
Experts on the technology say
that for it to have any chance
of making accurate matches of
old photos, the images need to
be of high resolution, with
good lighting.
“If you have a grainy, black-
and-white photo, you’ll likely
match the photo with various
people mistakenly,”
says Zak Doffman,
who runs British fa-
cial-recognition com-
pany Digital Barriers.
Still, he says, some of
the methodologies
used in facial recogni-
tion can help buttress
the case for a match.
Deborah Rogal, di-
rector of photographs
at New York-based
Swann Auction Gal-
leries, puts little stock on the
technology’s power to work on
old photos. “We’re still looking
for that additional supporting
evidence,” she says, such as
records of ownership, a critical
verification factor that histori-
ans call provenance.Such skepticism hasn’t dis-
couraged Steve Sussman, a
former TV writer in Colorado
and collector of old photos.
Five years ago, he started us-
ing facial-recognition software
on scans he made of tintypes,
a type of early photographic
image rendered on metal.
He was inspired by a Na-
tional Geographic documen-
tary about a man, Randy Gui-
jarro, who bought a $2 tintype
at a junk store in Fresno, Calif.
In the documentary, facial-rec-
ognition software was used to
try to match it with the only
other known image of Billy the
Kid, which had sold for $2.
million in 2011. The programstrongly suggested that Mr.
Guijarro’s find was authentic.
Mr. Sussman dug into his
own tintype collection, run-
ning the images through sev-
eral websites offering free,
face-matching scans, to see if
he had missed any potential
gems.
He now regularly searches
for tintypes and other old pho-
tos on eBay, looking for famil-
iar Old West faces to run
through the sites. He says the
science isn’t perfect, and he is
happywithamatchratedasa
50% or higher confidence
level. He has sold images that
facial recognition determined
could be Doc Holliday andJesse James, for hundreds of
dollars apiece. He says he tells
potential buyers what the soft-
ware determined but to judge
for themselves whether the
photo is of the famous figure.
The authenticity of Mr. Gui-
jarro’s Billy the Kid find has
since been questioned, includ-
ing in a 2016 cover story
in True West, in which more
than a half dozen authors and
academics raised doubts.
“They aren’t experts,” says
Mr. Guijarro, who has held on
to the tintype.
Despite the skepticism from
historians, Mr. Rodman re-
cently planned to bring his
photo of the Dalton brothers
to a face-recognition specialist
in New York for an analysis.
Mr. Buck, the True
West writer, says he recently
saw another TV show in which
facial-recognition software
was credited with identifying a
man in an antique ambrotype
photo as Abraham Lincoln on
his deathbed.
The bed, Mr. Buck noticed
right away, wasn’t the authen-
ticated one on display at the
Chicago History Museum.
“Not that it matters,” Mr.
Buck says. “It’s not Lincoln, ei-
ther.”some controversial initiatives
championed by the Chinese
leadership.
When index provider MSCI
Inc. first considered including
Chinese A-shares, which trade
on the mainland, in its emerg-
ing-market indexes, which
form the backbone of how
many large institutions invest,
institutional investors were
apprehensive given the poor
insight into Chinese compa-
nies and restrictions on the
movement of capital.
The Chinese government
lobbied heavily for the inclu-
sion. The other strong voice
was from BlackRock, people
involved in the discussions
say. The firm started out op-
posing the move but then
threw its weight behind it af-
ter Beijing made it easier for
foreign investors to trade Chi-
nese stocks.
Soon after MSCI announced
its decision in June 2017,
BlackRock received approval
for a prior application to start
a private-fund business in
China for select investors.
“BlackRock’s support for the
MSCI decision on China cer-
tainly helped,” recalls a Chi-
nese regulatory official.
For some of Mr. Fink’s crit-
ics, a big question is how he
squares the firm’s fund invest-
ments in China with his role at
home as a self-appointed arbi-
ter of corporate behavior. Mr.
Fink has said that companies
that exploit workers or the en-
vironment won’t deliver last-
ing shareholder returns. He
played a major role in getting
the Business Roundtable to
adopt its August 2019 state-
ment that a corporation
should serve all stakeholders.
In June, then-Sen. Martha
McSally and Sen. Kevin Cra-
mer, both Republicans, sug-
gested in a letter that Mr. Fink
is applying a double standard,
urging a closer look at why
BlackRock isn’t “shining a
light of transparency on these
poorly-governed, secretive
Chinese companies.”Call for transparency
To Mr. Fink, there is no
contradiction between his U.S.
and China messaging. Black-
Rock says its goal is to help
improve corporate governance
world-wide and advocate for
shareholder disclosures it
thinks China needs for the
country’s markets to attract
global money.
In a Sept. 25 speech Mr.
Fink delivered virtually to a
forum in Shanghai, he called
on China to pursue “greater
transparency and improved
accounting standards to pro-
mote investor confidence.”
In 2017, when Hong Kong-
traded Chinese companies—in-
cluding Industrial & Commer-
cial Bank of China and oil-and-
gas giant China Petroleum &
Chemical Corp.—proposed
charter changes requiring
their boards to seek advice on
major decisions from Commu-
nist Party committees, Black-
Rock funds voted in support,
as did many other U.S. asset
managers.
Critics of these charter
changes say they reduce
shareholder influence and en-
trench the party’s role in cor-
porate governance.
“The party committees al-
ready had a role in gover-
nance,” BlackRock says, adding
that the changes “made that
more clear and transparent”
and were a fuller accounting
of investment risks.Wall Street
Stands By
China
Billy the Kid