Wall Street Sea Turtles: Assets or Liabilities?

The increasing number of Chinese Americans returning from Wall Street to China presents both a challenge as well as opportunities to the modernization of China’s financial sector.

The term “Sea Turtle” refers to Chinese who return from overseas residence to work in China. The boom in Chinese private investment and venture capital has captivated the imagination of many Chinese American financial professionals and enticed them to become Sea Turtles. These are usually middle level professionals who have good educational qualifications and technical skills in the trade. Sensing that they have reached their professional peaks in Wall Street, the enticement to return to China is very tempting. Additionally, their understanding of the language and culture gives them a unique advantage as compared to foreign expatriates who are flocking to China.

However, a series of recent crises in the financial world of China has raised the question of whether their return and bringing home of Wall Street’s financial techniques are a boon or a bane to China. The most infamous reform that the Sea Turtles introduced, the "circuit breaker," was abruptly stopped after 4 days of implementation which saw the wiping out of billions in market capitalization earlier this year. Increasing revelations of discredited Wall Street practices of financial product manipulation such as tranching have added to skepticism of the usefulness of the skills they have brought home.

Financial history is littered with fallacies and many of the Wall Street products have been proven to be toxic to the financial system. The rise of consumer protectionism in financial system regulations and the tightening of banking rules after the 2008 global financial crisis are testaments to the destructive power of finance if it’s not properly monitored and regulated. Unfortunately, middle level executives returning to China often lack the broad view that senior executives possess when they confront the issue of product suitability. The systemic danger of the financial products that the returning Chinese Americans bring home cannot be dismissed.

On the other hand, these returning Chinese Americans know the broad Chinese economic setting and the global financial architecture's evolution better than most expatriates and even perhaps the local Chinese. They can meaningfully contribute to the inevitable new financial structure that China must build in the "New Normal" and the ever increasing role that China will assume in the evolving global financial architecture.

The operating environment is the critical element in deciding whether the returnees will be an asset or a liability to China. Regulators must formulate a clear set of rules to channel the returnees’ talent to the preferred areas and clearly set limits to what they can do. Toxic products come not because of individuals; it is more of the system that allows the poison to bud and spread.