I hear that China is accelerating WTO phase-ins for participation by foreign-owned securities companies. What commitments has China made and what regulations are planned for the future of the securities market with respect to investment banking?
According to its WTO commitments, China must allow joint ventures with, at most, 33% foreign ownership to underwrite shares and broker foreign-currency B shares by December 11, 2004. However, China has already approved several foreign entrants in early 2002, increasing equity levels and allowing A-share brokering. Investment banking services will be in demand as the pace of Chinese company listings picks up and foreign-invested enterprises in China receive long-awaited approval to issue A shares. An expected boom in mergers and acquisitions will further boost investment-banking growth.
Regulators are likely to extend special privileges to a few desired entrants before the WTO commitment on securities companies takes effect. This window of opportunity exists because current Chinese law does not prevent the government from granting A-share trading licenses or approving higher foreign-equity ownership levels. China may apply grandfather provisions to the business scopes of such new investments when it introduces new laws to comply with WTO rules as long as WTO commitments and Most Favored Nation principles are adhered to.
CSRC released a draft rule on securities companies, the Measures on Approval of Sino-Foreign Joint Venture Securities Companies, in late 2001. The draft echoed China's WTO commitments on equity limitations and business scope. The draft also set a minimum registered capital level of US$ 60 million, again in line with regulatory commitments to limit entry into the market to only the biggest, most committed players. CSRC has also instituted the more general Rule on Management of Securities Companies (the rule), which, although authorizing the establishment of foreign-invested securities companies, refers to rules specific to foreign investors that have yet to be finalized. The rule nevertheless makes it clear that foreign investors may either become a partner in a new joint venture or simply buy into existing securities companies.