Wishing change on China from afar can be a mug's game. Outsiders' wishful thinking for fundamental reforms on the mainland often remains just that, from Rupert Murdoch's premature claim 12 years ago that satellite television constituted an 'unambiguous threat' to authoritarian regimes 'everywhere' to remarks this week by Christopher Cox, chairman of the United States Securities and Exchange Commission, that 'the development of healthy capital markets in China will lead directly to the advance of freedom'. China played host this week to a steady stream of foreigners with bold visions for its future. Most of them, inevitably, were American and included Treasury Secretary John Snow, Federal Reserve Board chairman Alan Greenspan, Defence Secretary Donald Rumsfeld and Mr Cox, who also noted that those who did not embrace shareholder democracy might face 'the same destiny as the Qing [empire]'. Mr Snow's call for a more profligate China in America's mould was perhaps the most ironic prescription on offer, but his vision of a more consumerist communist giant was repeatedly endorsed by none other than central bank boss Zhou Xiaochuan. Beijing is usually cool to such 'interference in [its] internal affairs'. Yet in at least one long sensitive sector it is increasingly tolerant of foreign influences - the country's brokerages. Even before Messrs Snow and Cox descended on China, attending the Group of 20 summit in Hebei and a Securities Industry Association forum in Beijing, overseas investment banks were increasingly welcomed as white knights. In the most significant deal, announced late last month, UBS bought a 20 per cent stake in Beijing Securities for US$220 million. Similar deals are expected to follow. Under the terms of its accession to the World Trade Organisation, the Chinese government is not obliged to allow outside investors to take controlling interests in mainland brokerages. But Beijing, which has poured billions of good money after bad into the black hole that is the country's securities industry, has lost patience with the debts, fraud and mismanagement that have plagued the sector. It wants stock markets commensurate with the dynamism of the world's fastest growing major economy - not ones on life support. Only 10 of China's top 34 brokerages made a profit in the first half of this year, while the rest had a combined loss of 995 million yuan. Last year, the country's 110 brokerages suffered losses totalling 15 billion yuan. According to industry sources, the China Securities Regulatory Commission selected 12 brokerages for pilot restructurings, making them potential candidates for substantial foreign investment. JP Morgan is in talks to take a major stake in Liaoning Securities, while Credit Suisse First Boston and CLSA are negotiating for a stake in Xiangcai Securities. 'The Chinese brokerage industry has been dysfunctional for 15 years,' a foreign banker said. 'Beijing decided that efficiency and functionality are more important than ownership. If the market works properly and companies raise money from it, that will relieve the financial pressure on the banks as the sole sources of finance for companies. 'The other issue is liabilities - the brokerages owe billions and the Ministry of Finance is the payer of last resort. These sales save the ministry from having to bail them out.' This epiphany coincides with a consensus among foreign investment houses that the mainland's four-years-and-counting bear market cannot continue indefinitely. They reckon strong companies and the world's highest savings rate must, sooner or later, translate into a booming market. Better still, the government's change of heart potentially gives them an opportunity to buy into domestic brokerages on advantageous terms. 'Compared with the scale of China's growth, the amount of capital allocated through the securities system is still very small,' JP Morgan Chase International president Andrew Crockett said. 'So there is tremendous opportunity, if the preconditions are put in place, for the securities market to grow. 'It does not have to be full control. It might not have to be majority control either but it does have to be a sufficiently large stake that the foreign institution has a business that is developing and that it can influence.' Although the 20 per cent UBS stake in Beijing Securities is less than Goldman Sachs' 33 per cent in Gaohua Securities, for which the American bank paid US$60 million last year, its European rival is unique in being the largest shareholder and exercising control. Beijing Securities' financial plight became evident in 1999, well before the onset of China's bear market and for the next three years auditors gave it only qualified statements on concerns about accounts receivable, non-performing investment assets and inadequate reserves. Even so, the firm continued to expand, posting a loss of 160 million yuan last year. Of the US$220 million paid by UBS, about US$180 million was allotted for the brokerage's debts and the remainder to recapitalise it. UBS, Goldman and other would-be white knights have been assured they are not suddenly loved for their money alone. 'In reorganising securities companies, I am in favour of bringing in foreign investors,' said Zheng Zhijie, the president of China Jianyin, an investment vehicle under the People's Bank of China. 'The purpose is not to absorb foreign capital but best practices in risk control and management.' A sense exists among overseas investment banks that the stars are aligned for them at the moment. But this could be only temporary, especially if China's stock markets really have bottomed out and the brokerage sector rebounds with them. As Mr Murdoch could tell them from his own experience, windows of opportunity in China are sometimes slammed shut.