HSBC has received approval from regulators to set up a majority-owned securities joint venture in China, the first for a foreign group in the country.
Hong Kong-based Bank of East Asia was also granted approval by the China Securities Regulatory Commission to open a securities house in a special economic zone in southern China but it will take a 49 per cent stake.
Foreign banks have had mixed luck with minority-owned joint venture securities companies in China since 2004, when they were first set up.
The banks have said the businesses have given them much needed exposure to the market, which is still highly restricted to foreign financial groups and has up until now not allowed outside companies to own more than 49 per cent.
But the joint ventures have delivered poorly in terms of net profits and have ranked low on league tables in the country.
HSBC will hold a 51 per cent stake in HSBC Qianhai Securities Limited. The company will be based in the Qianhai special economic zone in the southern Chinese city of Shenzhen and is expected to launch by the end of the year, according to a statement from the bank.
The business will include equity and debt underwriting, equity research and advising on domestic and outbound mergers and acquisitions. HSBC’s partner in the joint venture is a local government-backed group called Qianhai Financial Holdings.
HSBC has sought out a new lifeline for its Asian business by expanding in China’s Pearl River Delta. Some analysts have pointed out that competition with Chinese banks as well as slowing growth in China could hinder the expansion in the region that sits across the border from its base in Hong Kong.
JPMorgan exited its Chinese securities joint venture with First Capital Securities last year, the first global investment bank to sell off its onshore business.
Foreign securities joint ventures were first approved in 2004. UBS and Goldman Sachs are the only foreign banks with operational control over their businesses and both were considered special deals that cannot be replicated following amendments to rules in 2007.
Goldman has been actively lobbying Beijing to allow foreign banks full ownership — something mainland authorities have already granted to other financial sectors such as asset management.
HSBC’s joint venture was allowed under an agreement between Hong Kong and mainland China that states Hong Kong-funded financial institutions can set up one such business in several large Chinese cities.
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