Shenzhen Stock Exchange at Shenzhen, China (Photographer: Lucas Schifres/Bloomberg News)

HSBC Scores First Foreign Majority-Owned China Securities JV

(Bloomberg) -- HSBC Holdings Plc became the first foreign bank to win permission for a majority-owned securities joint venture in China, a structure some of its competitors have unsuccessfully lobbied to secure for several years.  

The London-based firm received approval to invest 918 million yuan ($135 million) for 51 percent of a venture with Qianhai Financial Holdings Co., the China Securities Regulatory Commission said in a statement on Friday. HSBC Qianhai Securities Ltd. is expected to start operations that include trading locally listed securities and underwriting initial public offerings by the end of the year, HSBC said in a separate statement.

“China’s securities industry reform is taking a big step forward as it’s further opening up the market to foreign firms,” Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co., said by phone. “The regulator’s move is paving the way for more foreign banks to own a majority stake.” 

The approval may ignite optimism among other foreign investment banks that have struggled for years to challenge local rivals. Regulations limiting them to minority stakes in their joint ventures have reduced their sway over key decisions and they’ve been largely excluded from lucrative businesses such as secondary-market trading in Chinese debt and equities, as well as from managing money for wealthy clients.

The issue of control contributed to JPMorgan Chase & Co.’s decision to sell its stake in JPMorgan First Capital Securities late last year after six years in the venture. Chief Executive Officer Jamie Dimon said on June 5 that the lender is seeking to find a new structure that would eventually give it full control.

Free Trade Zone

HSBC Qianhai will be able to conduct equity research and brokerage activities on locally listed securities, equity and debt underwriting and sponsoring, and advising on domestic and cross-border corporate mergers and acquisitions, HSBC said in its statement.

The venture will be based in the financial free trade zone of Qianhai in the southern province of Guangdong. An economic partnership agreement between Hong Kong and the mainland lets “Hong Kong-funded” institutions set up joint venture firms with a stake of up to 51 percent in Shanghai, Guangdong and Shenzhen, according to the bank.

Separately, Hong Kong-based Bank of East Asia Ltd. also received approval to establish a joint venture with Qianhai Financial. BEA will invest 735 million yuan for a 49 percent stake in East Asia Qianhai Securities Co., the CSRC said.

Chinese officials have signaled in recent months that the government would move to allow greater access for foreign firms to the country’s financial industry. Protecting domestic firms from outside competition makes them lazy, People’s Bank of China Governor Zhou Xiaochuan said earlier this month.

Other banks have signaled their willingness to raise their investment in China to profit more from the country’s evolving markets for trading and capital raising. Morgan Stanley and UBS Group AG were in talks with local partners to boost holdings in their China securities businesses to the maximum 49 percent allowed under current rules, people familiar with the matter told Bloomberg in January.