Changes Planned in China’s Securities Industry that will Allow Foreign Banks to Control Joint Ventures
China is planning changes to its securities industry that will now allow foreign banks to control local joint ventures and broaden its offerings. Foreign firms are now allowed to own majority stakes in local ventures within the year and ultimately be able to take full control, regulators should also be planning to give foreign owned joint ventures the permission to expand into other areas beyond stock and bond underwriting.
A greater foreign participation will also help China develop its securities industries after a decade after Goldman Sachs Group created a joint venture in Beijing. This will be a significant move and will provide great incentive for foreign banks to deploy resources in China. China is also stepping up its opening of capital markets after being admitted to the World Trade Organization in December of 2001. This also encourages local brokerages to look for overseas partner to help strengthening the industry which was riddled with corruption, scandals and mismanagement.
Since then China’s securities firm surged in value as the nation’s economic boom have pushed stock markets higher and trading volumes have soared in Shanghai and in Shenzhen. foreign backed joint ventures were restricted primarily to handling share sales and bond underwriting and trading but did not benefit to the same extent.
China’s securities regulator stated that is was studying a proposal to let banks apply for brokerage licenses, thus signaling a looming shakeup for local securities firms that have been protected for years by government restrictions on new entrants. A major way to speed up this capital market reform is to allow more foreign capital into the market. Although it might take a while before overseas players can penetrate into the market so the threat to local firms is not imminent. China securities regulator might take into account how long an overseas firm has operated in the country before deciding on how much the scope of the business it can broaden.