16 September 2019
Morgan Stanley CEO James Gorman said China is the only country in the world where the bank does business but doesn't have at least 50 percent ownership of the business. Photo: Bloomberg
Morgan Stanley CEO James Gorman said China is the only country in the world where the bank does business but doesn't have at least 50 percent ownership of the business. Photo: Bloomberg

Morgan Stanley wants majority stake in China joint venture: CEO

Morgan Stanley wants to obtain majority ownership of a joint venture in China, but regulators there have not signed off on the idea, chief executive James Gorman said.

Morgan Stanley, the sixth-largest US bank by assets, has a mutual funds joint venture in China called Morgan Stanley Huaxin Fund Management Co., as well as a securities joint venture with Huaxin Securities. In April, the bank became the largest shareholder in the funds venture, but remains a minority owner.

Gorman did not identify which venture he was referring to.

“China is, I think, the only country in the world where we do business [and] don’t have 50 percent or more ownership of our business,” Gorman said at the International Economic Forum of the Americas in Montreal on Wednesday. “That is unacceptable.”

China has historically prevented foreign investors from becoming too powerful in its markets. That stance softened recently, with Beijing allowing foreign financial institutions to expand their presence onshore, but some Western companies have complained that progress is too slow.

Gorman said he recently spent time with regulators in China, seeking authority for Morgan Stanley to acquire a majority stake in one of its joint ventures.

Although they were open to the discussion, the broader trade war between the United States and China is hurting business ties and threatening to destabilize both countries’ economies, Gorman said.

“There’s a hardening of attitudes on both sides,” he said.

Further opening up

In Shanghai, China’s top banking and insurance regulator said the country plans to further open up its banking, securities and insurance sectors.

Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, told a financial forum on Thursday that China especially welcomes experienced global asset managers.

Meanwhile, a lobby group representing global banks and asset managers said China should not restrict access for US financial firms if the trade war escalates and spills into the financial sector.

The Asia Securities Industry & Financial Markets Association (ASIFMA) also urged Beijing to accelerate opening up of the country’s financial markets to attract much-needed foreign capital to aid a slowing economy amid rising trade tensions.

“Our message to the Chinese authorities would be that it wouldn’t be wise at this point in time to play those kinds of games between US and non-US firms,” ASIFMA chief executive Mark Austen told Reuters.

“China really needs to open up their markets for their own interests and create a transparent, fair, non-discriminatory access to their market.”

Austen added that there was as yet no evidence of China favoring non-US firms over US-based ones.

In March, US banking giant JP Morgan won regulatory approval from China to take majority control of its securities joint venture, putting it on a par with Swiss rival UBS and London-headquartered HSBC, who already have that right.

JP Morgan is also close to becoming the first foreign firm to own a majority of its Chinese mutual fund business, Reuters reported last month.

No link to trade tensions

In a report published on Thursday, ASIFMA complained that China has been slow in granting local operation licenses to US rating agency Fitch Ratings, and US bank card payment firms Visa and Mastercard, but Austen sees no links between these cases and rising trade tensions.

“We certainly see at this point no evidence of very significant escalation in slowing down of US firms getting access to the Chinese market in favor of other non-US, non-Chinese firms,” Austen said.

“I think the Chinese authorities are well aware that they need to create a transparent, non-discriminatory access and not allow politics to be infused into that because it actually undermines everything they’re trying to do in developing their financial markets.”

In its newly-published report, ASIFMA urged China to accelerate reform of its capital markets, relax foreign ownership rules and create a level playing field between domestic and foreign firms.

China needs to step up its transformation toward a consumption-led economy and cut its reliance on exports, so “there’s a real domestic imperative for China to develop its own capital markets and allow foreign investment to flow in and foreign firms to operate in China to help with that development,” said Austen, who expects a current account deficit in China in the medium term.

ASIFMA also urged China to relax capital controls, even as the trade war triggers concerns of capital outflows and yuan depreciation.

China has been very sensitive to capital outflows since 2015/2016, and “with the escalation of the trade tensions, they will become even more sensitive in the short term,” Austen said.

“But curbs on outflows would discourage foreign capital inflows,” he said.

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