Open up Financial Sector JP Morgan Goldman Sachs

After JP Morgan, Goldman Sachs granted full ownership of its joint venture in China

Rebbeca Ren

posted on October 19, 2021 7:28 pm

Goldman Sachs wins China's nod to fully control its local joint venture, which is the latest move to prove China's commitment to the gradual opening up of the financial sector. 

In a letter to employees on Sunday, the company said that it has received approval from the China Securities Regulatory Commission (CSRC) to buy out Beijing Gao Hua Securities, its local partner and take full ownership of the JV, Goldman Sachs Gao Hua Securities Company Limited (GSGH).

The JV, which now has been renamed Goldman Sachs Securities Company, was first established in 2004 and is responsible for underwriting local stock sales and providing 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," CEO David Solomon said in the letter.

Goldman Sachs is not the first Wall Street giant that has accelerated its presence in the Chinese market as the country scrapped ownership limits on securities and fund management firms in April last year.

In August, JP Morgan was approved by CSRC to take full ownership of its Shanghai headquartered securities venture, becoming the first fully foreign-owned brokerage in China.

Investment management company BlackRock, which manages more than $9 trillion, became the first licensed to start a wholly-owned onshore mutual fund business in China in June. Other fund management heavyweights such as Vanguard, Van Eck, and Schroders are reportedly planning to apply as well.

American Express launched a renminbi debit card in China last month, marking the first and the only foreign payments network licensed to process renminbi transactions in the country. 

Although the relationship between Washington and Beijing remains tense, as China is set to grow into the world’s largest economy, foreign investors, especially Wall Street, are eager to take a share of the unstoppable growth.

Previously, global investment banks accounted for a small share of equities trading and underwriting business in China, and deregulation in this area means that foreign capital can play a greater role in the lucrative market.

As of August, the Shanghai exchange hosted companies with a combined market capitalization of some $7.63 trillion, more than any other exchange outside the US, and Shenzhen hosted another $5.74 trillion, Wall Street Journal reported, citing data from the World Federation of Exchanges.

The competition will intensify in the short term as foreign securities firms expand their footprints in China, but in the long run, the "catfish effect" will help accelerate the reform and innovation of the domestic financial industry, researchers from GF Securities said in a June note.

Meanwhile, Beijing counts on foreign capital inflow to help boost the international use of the renminbi considering the increasing international demand for Chinese assets would be robust support for the internationalization of the currency.

With the steady opening of China's financial sector, more than 100 foreign banks and insurance, securities, payment, and clearing institutions have been approved in recent years, according to the State Council meeting held on July 27.

"As a developing country, China's development must rely on the real economy. Greater financial openness should better serve the real economy, which is of great importance to maintaining the country's economic stability," Premier Li Keqiang said at the meeting.

According to a personal finance survey published by China Merchants Bank and Bain & Company in March, China's total personal investable assets reached 241 trillion yuan ($37.48 trillion) in 2020 and the number of high-net-worth individuals (HNWI), the individual who possesses over 10 million yuan of personal investable assets, was 2.62 million. By the end of 2021, the number of HNWI will be enlarged to nearly 3 million and their personal investable assets will reach 96 trillion yuan.