IFR Asia – April 28, 2018

People

&Markets

Global banks

fear China will

limit JV control

7ESTERNûBANKSûAREûSEEKINGûCLARIlCATIONûFROMû

China’s securities watchdog on proposals

to allow them to take over their onshore

securities ventures, amid concerns about

high asset-value requirements and limits to

OWNERSHIPûBYûNON

lNANCIALûINVESTORS

'IVINGûFOREIGNûlNANCIALûlRMSûAû

controlling stake in their securities joint

ventures is a key part of China’s pledge to

ease foreign ownership curbs, especially in

THEûCOUNTRYSûTRILLION

DOLLARûlNANCIALûSECTOR

But draft rules released for consultation

last month by the China Securities

Regulatory Commission could have the

opposite effect and stymie broadening

participation, people with knowledge of the

matter have warned.

Under the proposed rules, controlling

shareholders must have a net asset value

of at least Rmb100bn (US$16bn), and

NON

lNANCIALû#HINESEûINVESTORSûWOULDûBEû

limited to a one-third shareholding.

If the NAV rule applied to the Western

banks’ local units, as opposed to the global

entity, most international banks would be

ruled out.

Bankers are rushing to submit requests

FORûCLARIlCATIONûOFûTHEûRULESûBYû3UNDAYû

when the consultation period closes.

Lyndon Chao, head of equities at the Asia

Securities Industry and Financial Markets

Association, which represents global banks

in Asia, said that while China had opened

the door to foreign capital it appeared to

be reluctant to welcome overseas securities

lRMS

“(The door) welcoming foreign securities

lRMSûTOûENTERû#HINAûONSHOREûONûAûLEVELû

PLAYINGûlELDûAPPEARSûLESSûOPENûTHANûWHATû

we had originally thought, based on the

second consultation and the net asset value

REQUIREMENTûFORûlRMSûSEEKINGûMAJORITYû

ownership,” he said.

Bankers are unhappy too with the

ONE

THIRDûLIMITûONûNON

lNANCIALû#HINESEû

investors, which means that if a Western

bank linked up with such an investor, it

WOULDûSTILLûNEEDûTOûlNDûANOTHERûPARTNERûFORû

the remaining 16%.

h4HATûDOESNTûmYûWITHûTHEûSPIRITûOFûWHATû

was intended based on the comments from

different Chinese regulators,” said one

person with knowledge of the proposed

rule changes. “Three may be a crowd.”

The people who spoke to Reuters

declined to be named due to sensitivity of

THEûISSUEû4HEYûSAIDûTHEûlNALûRULESûEXPECTEDû

to be announced by end June, could change

TOûREmECTûTHEIRûCONCERNS

The CSRC did not immediately respond

to a Reuters request for comment.

China surprised bankers and lobbyists in

November when it said foreign investment

banks could raise stakes to 51% in their

securities JVs, which offer underwriting

ANDûTRADINGûSERVICESûFROMûAûûCAP

Banks including Goldman Sachs, Morgan

Stanley and UBS run joint ventures with

varying degrees of operational control but

all have pushed for majority ownership.

In 2016, a lack of control was a factor in

JP Morgan’s decision to sell out of its joint

venture.

SUMEET CHATTERJEE, ENGEN THAM

IN BRIEF

Bond Connect

Trading volume rises

Trading via the Bond Connect link rose 7.2% to

Rmb162.58bn (US$25.74bn) in the first quarter

of 2018 compared to the last quarter of 2017,

according to a press release from the China

Foreign Exchange Trade System.

The securities traded via the scheme were

mainly negotiable certificates of deposit, policy

banks’ notes and China treasury bonds, CFETS

said.

Since the scheme was launched in July 2017,

288 offshore accounts have accessed China’s

interbank bond market via the Bond Connect

link, said CFETS.

Half of these accounts were offshore non-

corporation accounts, such as offshore mutual

fund products, 25% were offshore commercial

banks and 25% were offshore securities firms.

Geographically, 65% of the offshore accounts

are incorporated in Hong Kong, while the rest

are incorporated in about 30 jurisdictions

including Singapore, the US and the UK.

Activity via Bond Connect remains marginal

in relation to that of China’s domestic bond

market. In March, the average daily bond

trading volume was Rmb448.5bn in the

interbank bond market, according People’s

Bank of China data.

Yes Bank

RBI approval for rep offices

YES BANK said on April 20 it had received

approval from the Reserve Bank of India to

open two representative offices in London and

Singapore.