SHANGHAI'S new stock exchange chief Yang Xianghai has thrown his weight behind the push by foreign brokerages to set up branch operations in the city. Analysts said Mr Yang's support suggested an upgrade of the brokerages' status from representative offices was likely, paving the way for them to earn income from their China operations without resorting to complex arrangements to keep to the letter of the law. Mr Yang, in his first meeting with foreign brokerages since becoming general manager of the Shanghai stock exchange, was quoted by the Hong Kong China News Agency saying representative offices should be upgraded. Analysts said the change would also apply to foreign brokerages in Shenzhen. Licences for foreign securities houses currently limit their activities to marketing, research and liaison. In theory, representative offices are not allowed to generate income in China. In practice, 23 foreign brokerages in Shanghai and 12 in Shenzhen receive special permission from the two exchanges to trade in B shares for foreign clients. The brokerages have to set up fee settlement systems offshore to comply with their existing status. Hong Kong is their favoured site. Analysts said the change in brokerages' status would signal to the international investment banking community that China had a clear and co-ordinated policy towards foreign securities houses. The proposed change would give foreign brokers legal responsibility over the actions of their dealers, instead of it resting with their Hong Kong offices. Mr Yang did not mention a timetable for the upgrade, but foreign brokers believed it would come next year. 'It is impossible to say what the specific timing is, but I would not be surprised if the issue is dealt with in the Securities Law strongly expected to be unveiled next year,' said Richard Graham, Barings group chief representative in China. Beijing had indicated that the law, in the pipeline for nearly five years, would be passed next year to provide a clear legal framework for the finance industry, which now relies on several sets of interim regulations and the Company Law. Another foreign broker said China could not suppress the role of foreign brokers if it wanted to make its markets international. 'Foreign brokerages are advanced in their operations and could provide an impetus to improve China's broking industry,' he said. Mr Graham said Mr Yang's statement showed that serious thought was being given to the subject by the regulators - the People's Bank of China, the China Securities Regulatory Commission and the State Council Securities Committee. 'My personal view is he would not have said it unless there was some support in Beijing that we might be moving towards a change.' In an article for China Securities News , Mr Graham said the present arrangement was confusing and ill-defined legally. The current arrangement creates the problem of who should have legal responsibility if foreign brokers become involved in trading irregularities. Mr Graham said: 'In theory, it would be the local broker who originally sponsored the international broker, since the foreign securities house is not a legal person in China.' In practice, however, there was no doubt the foreign broker would accept responsibility. Analysts said even if foreign brokers were given branch status, they would pose no threat to domestic houses as their activities would still be limited to B and H shares. 'The key change for us foreign investment banking groups would be to establish companies which legally incorporate all our activities in China,' Mr Graham said. Analysts also said Mr Yang's proposal to have cross-listings of foreign firms in Shanghai would be a strong fillip to the exchange's ambitions to become an international financial centre. The exchange chief also said he would revive the idea of foreign companies listing in Shanghai. German car maker Daimler-Benz had previously indicated an interest in a Shanghai listing but shelved the idea after the stock exchange could not enlist Beijing's support.