People tend to speak of Goldman Sachs as the pioneer in SJVs, but in fact it is predated by China Euro Securities, a venture set up with CLSA as the international partner in 2002. While it has received little attention internationally, that may well change following the expansion of the licence in 2008, from an original model that just covered underwriting, to one that allows secondary trading and brokerage. This makes it look a lot more like CLSA does elsewhere in the world, with a focus very much on research and related trading business rather than primary investment banking.
As at the Goldman ventures, this is likely to dominate the business before long. “While the underwriting business has been our single source of income for some time, we would expect that revenues from trading should well exceed these in the next few years,” says CG Wu, CLSA’s chairman for China and Vice-chairman for Asia.
The CLSA experience is illustrative for those new licensees who one day hope to get the same expansion to their own licences. “Being granted the securities broking license required ongoing demonstration of our capability and our profitability,” says Wu. “We had to prove ourselves to the CSRC and were regularly audited and interviewed. It was not a fait accompli and I don’t anticipate that it will become any easier in the short term.” He speaks of “working deliberately and consistently over the last five years, playing by the rules to build a successful and profitable business.”
Wu says the venture “aims to provide the best research and the best sales service in the market,” and in doing so it’s interesting to see where he thinks the competition will be. “Global reach is key, which is why it will be difficult for purely domestic brokers to gain market share. Our current competitors are Goldman Sachs Gao Hua Securities, UBS SDIC and CICC and we expect it will remain that way for some time.”