Euromoney, December 2017 (first published November 14)
When it finally came, it took the market – and bankers who had been hoping for the news for many years – by surprise, but China’s decision to allow foreign partners in domestic securities joint ventures to take majority stakes raises as many questions as answers.
Bankers have been waiting for so long for the chance to own the majority of their mainland Chinese securities businesses that many of them had pretty much given up. Ever since Morgan Stanley bought in to the launch of CICC in 1995, and certainly since Goldman Sachs gained approval for its pioneering Goldman Sachs Gao Hua joint venture structure in 2004, western banks have waited and hoped for a pathway to control of their domestic securities operations.
The ownership ceiling went up from 33% to 49% in 2012, but that made little difference: banks want complete control of their ventures. Without it, they have been dwarfed in domestic securities business by local houses.
But now at last, progress. On Friday November 10, vice-finance minister Zhu Guangyao told a Beijing briefing that foreign firms will be allowed to own up to 51% of securities ventures and life insurance companies, and that the cap will be steadily removed in future.
He also said that foreign ownership limits on domestic banks and asset management companies would be removed.
Details were being drafted by regulators, he said, and would be released soon.
It is a move that almost nobody saw coming. There are tantalizing rumours swirling about: that the decision was made so high up that even the China Securities Regulatory Commission (CSRC), which will have to implement it, did not know in advance; that president Donald Trump, who was in Asia at the time, didn’t know it was coming either, with the announcement deliberately taking place once he was airborne so as not to be seen too overtly as a gift to him.
Even the most impeccably connected of international banks thought that this moment was years away, and probably that the Trump administration and professions of national protectionism had pushed it even further into the future.
One would assume that foreign banks will take up this opportunity, and Euromoney’s informal conversations with many of those with joint ventures suggest that they will. However, that won’t automatically be by upping their stake in an existing venture, for two reasons. One, the foreign partner might not want to do that; two, foreign banks may decide it is better to set up something completely new.