China: Two sneak through

Although Chinese laws still limit foreign participation in domestic securities businesses to a passive shareholding not to exceed 33%, two deals claim to have bypassed these regulations, critically with the explicit approval of the Chinese government. The deals, one by Goldman Sachs, the other from UBS, underscore the power of the banks’ mainland connections and the pragmatism of the Chinese authorities.

Goldman Sachs’s transaction, Gao Hua, is an unusual and clever deal that has enabled the Wall Street giant to control the joint venture, albeit via a byzantine structure. Approved in December 2004, Gao Hua gives Goldman its coveted domestic securities licences and the right to underwrite and trade domestic equities and debt.

“We’ve been very committed to the China market since the early 1990s, and thought seriously about moving onshore three of four years ago,” says Michael Evans, chairman of Goldman Sachs Asia. “We considered many strategies, including...