This policy was implemented as of July 2002. On December 19, 2002, China Euro Securities Ltd., the first securities joint venture after China entered the WTO, was approved by the CSRC. Registered in Shanghai, China Euro Securities was co-established by Hunan-based Fortune Securities Co. Ltd. and CLSA Asia-Pacific Markets, with a 67-33 percent shareholding structure.

After China Euro Securities, several other securities joint ventures were founded, including Daiwa SSC Securities Co. Ltd., UBS Securities Co. Ltd. and Goldman Sachs Gao Hua Securities Co. Ltd.

During this period, a large number of domestic securities companies were established; some good, some bad. Malpractice at securities companies, such as embezzling customers' transaction funds, brought unforeseen troubles to investors and market development. In response, the CSRC started comprehensive rectification of securities companies from 2004, and examination and approval of new securities joint ventures suspended thereafter.

In August 2007, the comprehensive rectification of securities companies was completed and during the second China-U.S. Strategic Economic Dialogue, held in May of that year, the Chinese Government agreed to annul the ban on foreign securities companies accessing the Chinese market and issue new licenses of securities companies, including joint ventures. It also agreed to allow foreign securities companies to further expand their business scope in China before the third Strategic Economic Dialogue.

At the end of December 2007, as one of the fruits of the third China-U.S. Strategic Economic Dialogue, the CSRC publicized the revised Rules for the Establishment of Foreign-Shared Securities Companies and newly formulated Provisions for Trial Implementation on Establishing Subsidiary Companies by Securities Companies, both effective since January 1, 2008. Examination and approval of securities joint ventures were resumed, but the speed was anything but quick. Within the following three years, only two securities joint ventures were approved: Credit Suisse Founder Securities Ltd. and Zhong De Securities Co. Ltd.

Some Chinese securities researchers have expressed their concerns about whether securities joint ventures approval will be accelerated this year.

Chen Zhengrong, a researcher at the Research Institute of Haitong Securities Co. Ltd., said the Chinese securities market is steadily opening up. And with this opening up, the Chinese securities market has become more closely connected with the global securities market in terms of market tendency, resource distribution among different industries and other aspects.

"However, opening the Chinese securities service industry should be carried out in an orderly and gradual way," Chen said.

Just emerging from the global financial crisis, China should control the opening of the securities market and give top priority to risk prevention, Chen said. The Chinese securities market is now in a primarily mature stage, with distinct characteristics of an "emerging and transitional market." The opening process of the securities market should not only promote development and improvement of the market, but also maintain domestic financial security and stability.

Fierce competition

Securities joint ventures' development in China is unstable and difficult, maybe because the Chinese securities market was just opened and foreign securities companies are still getting used to the new environment. From IPO underwriting in 2010, joint ventures fell behind their Chinese competitors.

According to figures from Wind Information Co. Ltd., 58 securities companies gained underwriting fees worth 17 billion yuan ($2.58 billion). Of the total, six joint ventures just got IPO projects from 20 companies and earned underwriting and recommendation fees of 1.39 billion yuan ($210.93 million), only 8.1 percent of the total.

Among the top 10 securities companies in China, only CICC was a joint venture. With five IPO projects, CICC earned underwriting and recommendation fees of 700 million yuan ($106.22 million), ranking seventh among all securities companies in China. Zhong De Securities Co. Ltd. underwrote seven IPO projects and gained 263 million yuan ($39.91 million), ranking 20th. UBS Securities Co. Ltd. obtained two IPOs and earned 170 million yuan ($25.8 million), ranking 40th. Daiwa SSC Securities Co. Ltd. got one IPO order and earned 10.1 million yuan ($1.53 million), ranking sixth from last. In 2010, Goldman Sachs Gao Hua Securities Co. Ltd. had no IPO orders.

In contrast, domestic securities companies grew fast in 2010. The top nine domestic securities companies underwrote 181 IPOs, more than 50 percent of the market's total and earning 54 percent of the total underwriting and recommendation fees. Ping An Securities Co. Ltd. won 38 IPOs and earned underwriting and recommendation fees of 1.99 billion yuan ($301.97 million), ranking first both in IPO number and underwriting revenue. Then came Guosen Securities Co. Ltd. with 32 orders, Huatai United Securities Co. Ltd. with 23, GF Securities Co. Ltd. with 21 and China Merchants Securities Co. Ltd. with 20.

Market analysts think the major reason for the failure of securities joint ventures is their unclear internal governance. Disagreements between the two parties may exist, and since joint ventures are held to a smaller business scope, the development of their investment banking business is limited.

But this does not mean securities joint ventures are not competitive.

In 2007 when the Chinese stock market soared, CICC, UBS Securities Co. Ltd. and Goldman Sachs Gao Hua Securities Co. Ltd. occupied the first, third and sixth position in the Chinese market in terms of underwriting and recommendation revenue. They participated in IPOs of large state-owned enterprises including PetroChina Co. Ltd., China Pacific Insurance (Group) Co. Ltd. and China Railway Group Ltd. In 2009, CICC maintained the top title.

Today, most foreign financial institutions consider securities joint ventures as a window to enter the Chinese securities market. At their initial stage of development, the main goal is to develop mutual understanding and gain experience. The planned international board affiliated to the Shanghai Stock Exchange may be their real target, where offshore companies are allowed to sell shares denominated in Chinese currency.

Securities Joint Ventures in China

- China International Capital Corp. Ltd.

- China Euro Securities Ltd.

- Daiwa SSC Securities Co. Ltd.

- Goldman Sachs Gao Hua Securities Co. Ltd.

- UBS Securities Co. Ltd.

- Credit Suisse Founder Securities Ltd.

- Zhong De Securities Co. Ltd.