Chinese securities regulators on Friday approved the joint ventures of J.P. Morgan Chase & Co and Morgan Stanley, bringing the banks a step closer toward operating securities businesses in China that they, and other banks, have long sought. The widely-expected decision will enable the two Wall Street banks to underwrite stocks and bonds in one of the fastest growing securities markets in the world.
But the two banks will have to wait another five years before their joint ventures are able to start the more lucrative broking operations. While foreign banks are attracted to China's rapidly growing economy and capital markets, finding the right partner for a joint venture and regulatory restrictions have delayed and sometimes derailed their attempts to enter Chinese markets.
"This was a gap we had in our franchise which we have filled now," said Zili Shao, chairman and CEO of J.P. Morgan's China's operations. "But we have a lot of work to do to make best use of this platform." he added. The long awaited approvals come just ahead of Chinese President Hu Jintao's visit to the United States from January 18.
Sun Zhe, a professor at Tsinghua University in Beijing who studies China-US relations, said that China has been making concessions in a show of goodwill before Hu's visit. The approval allows J.P. Morgan to make its maiden entry into the Chinese securities market, while Morgan Stanley will make a come back after exiting a joint venture with China International Capital Corp (CICC) last year.
J.P. Morgan will link up with First Capital Securities Co, a Shenzhen-based brokerage, and hold 33 percent of the venture. Morgan Stanley meanwhile, is able to move ahead with its new Chinese partner, Huaxin Securities Co Ltd, also known as China Fortune Securities Co Ltd. Morgan Stanley was an early entrant into China when it formed a JV with CICC in 1995, but recently sold its stake to a group of investors including KKR, TPG and Singapore's GIC.
Morgan Stanley will hold a one-third stake in the new joint venture, which will be called Morgan Stanley Huaxin Securities Co Ltd and registered and principally located in Shanghai. Chinese IPO markets have taken off in the past two years, with total proceeds from last year's offering rising to $69.5 billion, compared with just $9.5 billion in 2008, according to Thomson Reuters data.
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