Goldman gains approval for landmark mainland venture

Goldman Sachs and prominent mainland banker Fang Fenglei have obtained final regulatory approval to launch a pioneering joint-venture investment bank in the mainland.

Mr Fang and mainland computer giant Lenovo Group will establish Beijing Gaohua Securities, a one billion yuan brokerage that will inherit the operating licence of failed Hainan Securities.

Gaohua will in turn establish a joint-venture investment bank with Goldman, to be called Goldman Sachs China.

According to mainland banking sources, Goldman will invest about US$190 million, which consists of $30 million for a 33 per cent stake in the venture, a $100 million loan to Mr Fang and his team to help him establish Gaohua and a $60 million contribution to a Hainan Securities' creditor fund.

After reviewing the deal for months, mainland regulators approved it in the belief that it would help bring China's capital markets more in line with international standards.

'The approval of the new joint venture signals the continued internationalisation and opening of China's capital markets,' said Lawrence Lau, Chinese University of Hong Kong vice-chancellor and a noted China economic specialist.

The deal should give Goldman an edge over most western investment banks in the race to underwrite mainland shares and bonds and puts it on an equal footing with Morgan Stanley, which partly owns China International Capital Corp (CICC), the mainland's first joint-venture investment bank.