Securities JVs get nod to expand business

China's top securities regulator has enlarged the shareholding ratio for foreign capital in joint venture securities companies and is encouraging them to expand the scope of their business, amid the further opening of the nation's financial system and capital market.

The China Securities Regulatory Commission announced on Friday that foreign shareholders can have a total stake of as much as 49 percent in a joint venture securities company, up from the previous limit of one-third.

In a joint venture, at least one Chinese shareholder should own more than 49 percent of the total shares, according to the CSRC.

"The new policy is to fulfill the Chinese government's pledge at the fourth China-US Strategic and Economic Dialogue in June and to promote the opening of the securities industry," an official from the commission said at a news briefing.

The regulation also lowered the standards for Sino-foreign securities joint ventures to expand their business scope. Joint ventures can apply for new services after two years' operation, compared with five years in the past, the CSRC said.

Their scope can be expanded into brokerage services and financial consultancy, alongside the investment banking business.

"Shareholders from Hong Kong, Macao and Taiwan should follow the same regulation, and we are promoting the business opening for those three regions," the official added.

According to analysts, the new policy is expected to give a shot in the arm to China's securities joint venture business, while also increasing brokers' competitiveness.

The business performance of 11 Sino-foreign securities joint ventures was lackluster this year, influenced by the gloomy stock market and economic slowdown.

The Shanghai Composite Index that tracks the biggest companies' shares in the mainland declined 1 percent to 2092.10 at the close on Friday, its lowest level since March 3, 2009.

The continual drop of the index reflected investors' lack of confidence in the economic outlook based on the situation in the first half of the year, said Jing Ulrich, managing director and chairwoman of Global Markets, China at JPMorgan Chase.

In the first six months of this year, only three of the 11 securities joint ventures gained a total of five IPO underwriting projects, raising 4.96 billion yuan ($781 million), according to data from Wind Information Co Ltd. In the A-share market, 33 securities companies raised 73.4 billion yuan by underwriting 108 IPOs in the first half.

"Compared with local Chinese securities companies, the joint ventures enjoy very limited strengths in the investment banking business," said Wang Xianyi, a researcher on China with Samsung Economic Research Institute, a South Korean think tank.

The expanded shareholding ratio for foreign capital and the companies' enlarged business scope may improve their performance in the Chinese market, Wang said.