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Finance

Goldman Sachs seeks full ownership of China securities venture

Other foreign banks plan similar moves despite Beijing-Washington tensions

Goldman Sachs will purchase the 49% it does not already own in its securities joint venture, making it the first foreign bank to acquire full ownership of such entities in China.   © Reuters

HONG KONG -- Goldman Sachs Group is seeking regulatory approval from Beijing authorities to fully acquire its securities joint venture in China, joining its global rivals in deepening its investment in the world's second-largest economy in the face of continuing tensions between Washington and Beijing.

Goldman Sachs, has signed a definitive agreement with Beijing Gao Hua Securities, its partner of 17 years, to purchase the 49% it does not already own. That would make it the first foreign bank to acquire full ownership of its Chinese joint venture. The company did not state the purchase price.

Goldman has begun the regulatory process, according to an internal memo seen by Nikkei Asia and confirmed by a spokeswoman. Others seeking 100% of their securities joint ventures include Swiss-based UBS Group and JPMorgan Chase of the U.S.

"One hundred percent ownership of our franchise on the mainland represents a significant commitment to and investment in China," according to the joint statement from Goldman Chief Executive David Solomon, Chief Operating Officer John Waldron and Chief Financial Officer Stephen Scherr.

"This focuses on growing and strengthening our existing China businesses, expanding our addressable market and investing in talent and technology," they said in the statement. "These efforts coincide with ongoing reforms underway in China's capital markets, continued robust economic growth and the expanding needs of increasingly sophisticated clients."

Once all regulatory approvals are in place, the U.S. bank will rename its Chinese unit to Goldman Sachs (China) Securities Co. from the current Goldman Sachs Gao Hua Securities Co. It also will migrate all its businesses in China to the fully owned unit.

China announced in late 2017 that foreign companies could own a majority stake in securities ventures subject to regulatory approval. Goldman Sachs and Morgan Stanley received approval in March to increase the stakes in their respective Chinese joint ventures to 51%.

China has opened up its $50 trillion financial industry and this year has removed foreign-ownership caps in the futures, securities and mutual fund sectors. Beijing has vowed to continue easing restrictions to its capital markets and this year gave overseas traders access to futures and options, and scrapped quotas on foreign inflows.

A U.S. Congressional commission this month cautioned that the financial liberalization was part of Beijing's plans to secure foreign investment and use it to boost the domestic economy. Relations between the U.S. and China have faced pressure under President Donald Trump, and signs point to a continuation of the current confrontation in a Joe Biden administration. Biden will take the presidential oath of office next month.

However, that has not stopped global banks from expanding aggressively in China as they focus on long-term growth opportunities in the economy. Securities companies in China nearly doubled their net profit to $18 billion in 2019, according to a report by KPMG, with Goldman Sachs' analysts estimating that figure to surge to $47 billion by 2026.

A survey by HSBC Qianhai Securities in September showed that nearly two-thirds of the more than 900 global institutional investors and major corporations in China are planning to increase their investment in the country by about 25% over the next year.

Credit Suisse Group took a majority stake in its joint venture in June. UBS, which owns 51% of its securities venture in China, last year revealed plans to own the unit entirely.

JP Morgan increased ownership of its China securities venture to 71% in October and has previously said it wants full ownership. Its asset management arm said in April that it had agreed to take full control of its onshore asset management joint venture pending regulatory approval.

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