CSRC Granting Chinese Lenders Investment Banking Licenses
(29 June 2020 – China) China Securities Regulatory Commission (CSRC) has announced plans to grant investment banking licenses to domestic commercial lenders to build up industry majors and face down strengthening foreign competition.
At least two of China’s largest banks could be approved to conduct investment banking business on the mainland under a pilot scheme by China’s securities regulator. The country’s top lender ICBC submitted a plan to CSRC in H2 2018 seeking to set up a securities unit with registered capital of 100 billion yuan. Many Chinese banks including ICBC, CCB and BoComm operate investment banking through their Hong Kong subsidiaries. Currently investment banking is not offered by most Chinese banks albeit BoC and CDB control brokerage businesses onshore under special arrangements.
China walked back foreign ownership caps in the brokerage business in Q1 2020 in order to fully open its US$40 trillion financial industry followed by global investment bank majors including UBS, Goldman Sachs, Morgan Stanley and Credit Suisse receiving the green light from the CSRC to raise their stakes in their Chinese mainland securities joint ventures to 51 percent. In 2019 JPMorgan and Nomura separately received approval from the regulator to set up new securities joint ventures on the mainland with majority foreign ownership.
East & Partners and Dealogic’s newly released Deal Makers – The IB Forecast research confirms a significant 78.5 percent of Top 100 mainland China corporates are planning to raise new debt in the coming 12 months at an average of 55.6 percent over current balance sheet levels. A further 17.2 percent are currently unsure.
“While China is opening up its financial market, domestic securities companies are facing hurdles in entering overseas markets, particularly the US market” commented CSRC Chairman Yi Huiman in an early June 2020 interview with Caixin.
“These companies are much less competitive than their major foreign counterparts due to lack of ‘sophisticated management’ when doing business abroad” stated a financial company Senior Analyst.