Brokerages with experience in cross-border deals will gain from new Shanghai international board

Although China has been a member of the World Trade Organization (WTO) for 10 years, the expansion of foreign investment banks in the country remains slow and joint-venture securities firms are still struggling to gain clients and a larger share of the underwriting business in the Chinese market.

As of October, 58 securities firms in China had underwritten a total of 226 initial public offering (IPO) deals and gained underwriting fees of 10.5 billion yuan ($1.67 billion) this year, according to data provided by Wind Info, a Shanghai-based integrated service provider of financial data, information and software. But only five IPO deals were underwritten by joint-venture securities firms, just 4.23 percent in terms of the total underwriting fees in the A-share market.

While foreign investment banks such as Morgan Stanley and Goldman Sachs Group Inc have long taken part in facilitating Chinese companies selling shares in Hong Kong or foreign markets, their business in the domestic A-share market has not seen any significant breakthrough.

Last year, 106 brokerages in China earned a total profit of 80.9 billion yuan while joint-venture securities firms made only 1.9 billion yuan, accounting for 2.4 percent of the total profits in the market, according to Wind Info.

Analysts said that joint-venture securities firms are unlikely to challenge the dominance of their domestic counterparts in the domestic underwriting business in the near future.

"In the short term, foreign investment banks are unlikely to challenge the dominant position of domestic ones in the market as they don't have the network advantage," said Zhang Qi, an analyst at Haitong Securities. "They also face the hurdle of local restrictions on operating in the Chinese market."