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SCMP Reporter

Shenzhen and Beijing have lost a bid to Shanghai to house the headquarters of the country's biggest brokerage, China Guotai J&A Securities, in what analysts see as the central government's reward for the municipality's politically-correct behaviour.

 Industry sources said watchdog China Securities Regulatory Commission (CSRC) had given the thumbs up to the new house to set up its base in the emerging financial centre by January.

 With 22.5 billion yuan (about HK$22.11 billion) in assets, it will the biggest brokerage.

 The brokerage is the result of a merger arranged by the CSRC between Shanghai-based China Guotai and Shenzhen-based J&A, after a handful of the economic zone's top executives were implicated in a scheme to defraud the company. They now face criminal charges.

 The CSRC was reported to have chosen Shanghai over the two cities after consultation with Premier Zhu Rongji after intense lobbying by Shanghai mayor Xu Kuangdi and party chief Huang Ju.

 Analysts said the decision came as they detected a new-found enthusiasm among central government leaders for Shanghai in recent months because, in contrast to renegade Guangdong, it was more receptive to Beijing's influence.

 'There is a confidence in central top decision-makers that Shanghai is more orderly and its leaders more co-operative and so they are comfortable with the idea of putting the biggest brokerage here,' a broking source said.

 Shanghai and Guangdong, being economically major contributors to the economy, hold a special place in the central government's decision-making process.

 'When the central government drafts a policy, it often considers the impact on Shanghai and Guangdong,' a Shanghai government adviser said.

 Guangdong, always regarded by Beijing as a kingdom unto itself, has lost favour because of corruption among some senior cadres and widespread financial irregularities.

 Shanghai, too, has its share of scandals, but its leaders are often quick to punish the culprits and act to repair the damage.

 This sits well with Beijing and strengthens the municipality's bargaining power when it comes to lobbying for projects, such as the new brokerage.

 'Plans to set up the big house are going according to the timetable and we hope to make it official by January as scheduled,' a Guotai manager said.

 Having the new brokerage based in Shanghai would boost the country's bid to promote the city as a domestic and international financial centre.

 That it was nearer to Beijing also facilitated supervision by the CSRC.

 Shenzhen mayor Li Zibin and party chief Li Youwei had originally fought for J&A to merge with another Shenzhen brokerage in a bid to retain J&A in the special economic zone, after it became clear the army-linked house would be forced into a marriage by the CSRC. They said the brokerage belonged there on the grounds the latter was a major contributor to its tax revenue, and it would be hurt if the house was moved elsewhere.

 Analysts said the argument was rejected because J&A would continue to retain a big chunk of its operations in Shenzhen after the formal merger, and would continue to pay taxes.

 Shenzhen's case was further weakened by its distance from the capital city, where the CSRC is based, making supervision of the brokerage less convenient.

 The CSRC had originally wanted the brokerage to set up its headquarters in Beijing which, because of its proximity, would make supervision of the house easier. That argument was not strong enough to fend off Shanghai's bid.

 Under a CSRC plan on the merger, the two houses would operate under the same name but maintain different accounts for three years, after which their operations would be consolidated.

 'The CSRC has done a preliminary check on the two houses' accounts and found that J&A's assets are of a higher quality than Guotai's and has decided to leave their operations as they are now, but under the name of the merged company,' a Guotai source said.



Shanghai wins right to house biggest broker