Comment

When China gained its membership in the World Trade Organization (WTO) in 2001, it promised to open its domestic securities industry to foreign capital. According to the promises, offices of foreign securities firms in China were allowed to become special members of the Chinese securities stock exchanges and to set up joint ventures to operate securities investment and fund management with a maximum stake holding of 33 percent.

Three years later, foreign stake holdings in a Chinese financial institution were allowed to reach 49 percent. As early as Dec 11, 2006, five years after China entered the WTO, the country had met all its commitments to open up its capital market, according to the China Securities Regulatory Commission.

By the end of November 2006, the establishment of six joint-venture securities firms and 24 fund management companies had been approved, and foreign-held shares had reached 49 percent in 11 fund management companies.

However, today, a decade after China's admission to the WTO, there are only 12 joint-venture securities firms operating on the Chinese mainland; they include China International Capital Co Ltd, the first jointly funded investment bank in China.

In theory, cooperation between foreign banks and local security firms should have combined the market connections, customer channels and public relations of the local firms with the outstanding competitiveness in the international market of the foreign banks. But in reality, joint-venture securities firms have been disappointing performers and have not delivered the expected positive results.

In recent years, joint-venture securities companies have been the worst business performers on the Chinese mainland.

Fortune CLSA Securities Ltd was established in 2003 by Fortune Securities Co Ltd and its French counterpart CLSA Equity Capital Markets Ltd. It was the country's first joint-venture securities firm to be set up after China's WTO entry, but in 2009 it reported a loss of 6.94 million yuan.

In 2010, Zhong De Securities Co Ltd, founded by Shanxi Securities Co Ltd and Deutsche Bank AG, fell behind its peers by losing 1.76 million yuan.

Most joint-venture securities firms are formed by foreign investment banks and domestic small and medium-sized securities firms, so they are small ventures. As well, the sharp differences in corporate culture and attitudes to operation and management between Chinese and foreign companies have turned the expected advantages of joint ventures into disadvantages.

In 2007, a joint venture between domestic Changjiang Securities Co Ltd and BNP Paribas Bank, disintegrated after three years due to differing opinions on its future.

But as foreign securities firms want to tap into the domestic market and their domestic counterparts look to the global market, so jointly owned securities firms are a transitional step for both.

Foreign investment banks want to learn about the operation of the domestic capital market and boost their brands in China by forming joint ventures with local companies. When policies allowing independent operation come into effect, they will be able to establish solely funded securities companies, which is the real motivation behind their moves to form joint-venture firms with Chinese partners.

The author is the director of the Finance and Securities Institute at Wuhan University of Science and Technology. The opinions do not necessarily reflect those of China Daily.