Merrill Lynch, Morgan Stanley and JP Morgan Chase have all indicated that they want to establish local firms.

Foreign firms are restricted to owning 33 per cent of an investment banking venture and 20 per cent of a brokerage.

The government last month closed the door on future partnerships by preventing any more overseas firms from buying domestic brokerages. And it is unlikely to allow any new purchases by overseas firms until 2007, when the reshuffle of China's long-troubled securities sector is expected to end and local firms are strong enough to handle international competition.

China will fully open its financial sector by the end of this year, which means a much wider channel for foreign funds to enter this emerging market.

However, there is a large gap between domestic brokerages and their foreign counterparts. Statistics show that the combined revenue and profit of Chinese securities firms were US$2.9 billion and US$1.56 billion in the first half of this year, while Goldman Sachs had overall revenue and profit in the first half of 2006 of US$20.4 billion and US$50.4 billion, four and eight times that of China's securities sector.

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