(Shanghai Daily)
Updated: 2007-08-03 08:53

China should only open up its securities industry gradually and not allow foreign players to set up wholly owned subsidiaries in the near term, said a research report released yesterday by the Shenzhen Stock Exchange.

The country should also establish capital requirements for overseas securities houses seeking to start stock-related businesses on the Chinese mainland in the future, according to the note.

"Permitting overseas securities companies to form wholly held branches or subsidiaries will require huge regulatory resources," said Cai Yi, a researcher at the Shenzhen stock exchange. "It should not be considered in the next round of deregulation."

Chinese financial authorities temporarily halted vetting applications submitted by overseas institutions seeking to make ownership investments in mainland stock houses in September to win time for domestic firms to boost competitiveness.

The country is set to re-open the securities industry to foreign participation as early as the third quarter of this year after wrapping up a two-year reform campaign with the closures of more than 30 troubled brokers.

Only a few international financial giants, including Morgan Stanley, Goldman Sachs and UBS, have set up joint-stock securities ventures on the mainland.

The country caps foreign ownership at 33 percent in a Sino-foreign investment bank and 25 percent in a joint-venture brokerage.

Yesterday's note suggested that the country should raise the investment ceiling of overseas institutions in a domestic stock company to between 51 percent and 75 percent in the following reform phase.

The nation should also let more foreign companies become involved in brokering yuan-denominated shares and conducting investment consulting businesses, according to the research note.

But authorities should require foreign firms to set up joint-stock ventures with local partners if they want to conduct proprietary trading or financial derivative businesses, the note said.

Media reports early this week said that Merrill Lynch & Co was seeking a mainland partner to form a local investment-banking venture after scrapping an agreement with Huaan Securities Co.