According to Bloomberg, foreign investors may be kept away from controlling more domestic mainland brokerages for now. So far, only UBS and Goldman Sachs have been allowed to have management control of domestic mainland brokerages, although their stakes are still minority ones. It looks like future overseas investors may be limited to owning stakes, of 20% or less, in publicly traded brokerages, taking out the possibility of management control. Combined with recent news that Beijing may require future listings of domestic companies to tap the domestic share market first (see this article), China looks to be making sure it can develop a home grown securities industry.

This may be a smart move given the large proportion of profits that the financial industry accounts for in the U.S. economy. However, foreign investment banks such as J.P. Morgan, Morgan Stanley and Merrill Lynch are surely devastated that Goldman Sachs looks to have beat them all to the party again. A full opening of China’s financial industry to foreign players would surely help to advance the state of that industry by leaps and bounds. However, a full opening before a few domestic players are ready to compete also looks like a recipe for permanent market share domination by foreign players. In that sense, waiting a bit longer before opening up the domestic securities industry is probably a good move.

A couple strong domestic securities companies will also help the government avoid angry charges that foreign financial firms have been allowed to take advantage of China, reaping large gains through pre-IPO equity investments, and then reaping a second helping of fees when they help domestic Chinese firms list in Hong Kong.