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SCMP Reporter

The country is to limit the initial stake a foreign partner may hold in a joint venture securities firm to between 25 per cent and 33 per cent, in line with its World Trade Organisation agreement.

The China Securities Regulatory Commission yesterday published a long-awaited consultation draft clarifying the rules governing the setting up of joint venture securities companies.

The commission has given securities companies until December 25 to suggest amendments.

The regulations apply only to securities joint ventures and not to fund management companies, which will be subject to separate rules.

Under the proposed regulations, the joint venture securities company must have at least 500 million yuan (about HK$468 million) in registered capital and at least 50 qualified employees.

Foreign partners must hold a minimum stake of 25 per cent and a maximum of 33 per cent. Foreigners can also buy stakes in Chinese securities companies, according to the draft regulations.

China has promised that three years after WTO accession, foreign partners will be allowed to raise their maximum stake to 49 per cent.

The minimum stake a Chinese partner can hold is 33 per cent.

Foreign partners must have at least 10 years experience in the financial services industry, and be free of any serious regulatory punishment for the past three years.

Securities joint ventures will be allowed to underwrite yuan-denominated A shares and foreign currency-denominated B shares, H shares and bonds.

Hong Kong-based Bank of China International has already received approval to begin preparatory work to set up a joint venture securities company on the mainland.

Credit Lyonnais subsidiary CLSA and Xiangcai Securities are awaiting CSRC approval to set up a joint venture securities company to be called China Euro Capital.

China's second-largest brokerage, Guotai Junan Securities, has been in talks with several foreign investment banks, said Gu Jie, an official at Guotai Junan Securities.

China's fourth-largest brokerage, China Securities, is also negotiating with several investment banks to set up a joint venture securities firm as well as a separate fund management firm, according to China Securities executive vice-president Ling Xinyuan.

The China Construction Bank-Morgan Stanley venture, China International Capital Corporation, is the only joint venture securities company operating in China.

The bank has the advantage of having obtained most of the biggest deals involving Chinese companies in recent years.

Analysts said foreign investment banks and brokerage houses were eager to participate in the lucrative China domestic securities market, which raised the equivalent of billions of US dollars through initial public offerings of A shares last year.

The reforming Chinese economy, coupled with its gigantic size, is set to promise more fund-raising exercises on the stock market, thus creating opportunities for foreign firms.



Watchdog releases draft consultations for initial 33pc limit on foreign partner stakes