China: Sino-foreign securities joint ventures – Partners in name alone

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China: Sino-foreign securities joint ventures – Partners in name alone

Neither side appears to be gaining from Sino-foreign securities joint ventures.

When asked about their priorities, regional managers at global investment banks operating in Asia have over the past few years often told Euromoney that getting approval to launch a joint venture with a Chinese securities firm was high on the list. They have seen winning these licences as crucial to their chances of earning a steady stream of fees in China as its companies issue ever increasing amounts of equities and bonds in the domestic markets. Without such partnerships, foreign banks are restricted to the offshore market of Hong Kong, being unable to underwrite and sell shares and bonds in the onshore markets of Shanghai and Shenzhen. Goldman Sachs and UBS are special cases, having secured special deals for themselves in the first round of agreements before the rules were formalized; Morgan Stanley is concluding a divorce from its original partner CICC but was also originally one of this chosen few. Next, in December 2008 and April 2009, came Credit Suisse and Deutsche Bank respectively, the first of a new wave of firms that must follow strict new rules limiting the foreign partner’s stake in the joint venture to 33.3%. Since then RBS and JPMorgan have been among the foreign banks to announce that they too are forming joint ventures with Chinese securities firms, aiming to follow their rivals towards success in the region’s most exciting onshore capital markets.

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