China 'freezes foreign investment in brokerages'

SHANGHAI - China has suspended all new foreign investment in brokerages while it tries to clean up the debt-ridden sector, an official newspaper said yesterday, casting doubt on potential deals by financial giants such as Citigroup.

The China Securities Journal, citing unidentified sources, did not say how long the suspension would last.

But a spokesman for the China Securities Regulatory Commission said he knew nothing about the move.

The Journal said "approval of foreign banks' applications "to take stakes in or control local brokerages" had been suspended.

Analysts expressed scepticism over the surprise move - first reported by the influential, Beijing-backed Caijing magazine - as foreign capital and management expertise have been deemed crucial facets in a difficult overhaul of struggling brokerages.

"Banks are also full of problems and loaded with bad debt, but Beijing is desperate to attract foreign capital to that sector," said Zhou Lin, an analyst with Huatai Securities.

"Foreign capital could be the last chance for some debt-ridden brokerages, which would have to be closed down otherwise."

If confirmed, the investment suspension could jeopardise several potential multimillion-dollar deals.

Citigroup, HSBC and Credit Suisse are vying for a stake in mid-sized Xiangcai Securities, sources say.

But it could also help those already in the sector, including Goldman Sachs and Morgan Stanley, as it would forestall fresh competition.

The latest entrant was Switzerland's UBS, which said in September it would pay US$210 million ($297 million) for a fifth of Beijing Securities, while Merrill Lynch agreed to pay US$32 million for a third of Huaan Securities.

- REUTERS