China approves Goldman Sachs to control its securities joint venture

abdelaziz Fathi

The China Banking and Insurance Regulatory Commission approved plans by Goldman Sachs to acquire a majority stake in its mainland securities venture, becoming the latest global bank to take advantage of Beijing’s commitment to ease foreign-ownership restrictions.

In 2020, Goldman Sachs signed an agreement to take its holdings in Beijing-based Goldman Sachs Gao Hua Securities from 51 percent to 100 percent. The joint unit was first established in 2004 to underwrite local stock sales and provide financial advisory services to clients in mainland China.

“This marks the start of a new chapter for our China business following a successful 17-year joint venture. The approval would allow to position our firm for long-term growth and success in this market,” CEO David Solomon said in a letter to employees.

UBS was the first foreign-controlled brokerage approved by the securities regulator to upgrade its ownership in a local joint venture to controlling stake since the mitigated rules were implemented in late 2017.

Goldman Sachs has been discussing the offer with its partner in China, Fang Fenglei, and his associates as regulators vowed to speed up the process allowing banks, securities companies, asset managers and insurers to take majority stakes and full ownership of their local operations.

Moreover, JPMorgan has applied to win an auction to purchase the shares needed for a 70 percent majority equity stake in its Chinese futures joint venture. The lender was bidding for an extra 20% stake in its mainland business, J.P.Morgan Futures Co., a joint venture between the bank and its local partner.

China has repeatedly pledged to open its financial markets, including allowing foreign firms to own as much as 51 percent of their securities ventures, up from the previous 49 percent ceiling.

Other global investment banks, including Morgan Stanley, also sought a bigger controlling stake in its Chinese business under the new rules. Having spent years operating with limitations, where they were not authorized to surpass a 49 percent limit, banks signaled a desire to fully control their Chinese ventures in order to expand their mainland’s business.

Securities firms in China, which are mostly dominated by state-owned banks, generate more than $100 billion in revenue a year, official data shows.

Chinese President Xi Jinping said in 2018 that the nation would accelerate the opening up of its financial sector, including measures to facilitate foreign access to the Chinese insurance industry and easing restrictions for entry and expansion of foreign financial institutions.

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