One of China's biggest state-run infrastructure companies has decided to exclude UBS from a bond deal. A senior economist at the Swiss bank sparked a furor in China after he used the phrase "Chinese pig."
Swiss bank UBS has lost a lead role on a US dollar bond deal with China Railway Construction Corp. (CRCC). The decision came after comments made by a UBS senior economist referencing "Chinese pigs."
UBS had won a mandate on the bond sale worth $500 million-$1 billion (€446 million-€891 million) by the Chinese group, but was removed from the sale on Monday, according to a CRCC spokesperson.
The decision followed a remark by Paul Donovan, a global chief economist at UBS, in a podcast last week in which he attributed a rise of consumer prices in China to sickness among pigs.
"Does this matter? It matters if you are a Chinese pig. It matters if you like eating pork in China," Donovan said last Wednesday.
The remarks sparked outrage in China because of a perceived reference to people, not livestock.
Though UBS apologized for the comments on Thursday and put Donovan on leave on Friday, Haitong International Securities, a leading Chinese brokerage firm which competes against UBS for China-related business, announced on Friday that it would suspend all business with the Swiss bank.
$20 trillion market
The lost fees in the deal are negligible for UBS, but the symbolic effect of CRCC's decision could be potentially damaging for the Swiss bank, which has been in China longer than most Wall Street firms.
Global investment banks are preparing to push into China following rule changes that now allow them more control over joint ventures.
UBS was the first firm to take advantage of the new rules. In November, it won approval to increase its holdings in Beijing-based UBS Securities from 25% to 51%, putting it on track to become the first foreign bank in China to take a controlling stake of its local securities joint venture.
Most wealth managers serve their Chinese customers through offshore centers such as Hong Kong and Singapore, but the biggest prize for the industry is China's massive pool of onshore money, estimated by US financial firm Bloomberg to be $20 trillion.
China also has the second largest onshore bond market in the world, according to Bloomberg. As of June 2018, China's bond market was capitalized at $12 trillion, second only to the United States.