GS Goldman Sachs Group Inc

By Chao Deng 

BEIJING -- Goldman Sachs Group Inc. has applied with Chinese regulators to take a majority stake in an investment-banking joint venture, the most recent move by a foreign company to tap the nation's vast financial sector.

The company filed paperwork to increase its stake to 51% from 33% in Goldman Sachs Gao Hua Securities Co., with the goal of eventually taking over the local operation completely, according to a Goldman spokesman.

The move means three of Wall Street's biggest names could soon control their brokerages in China. Morgan Stanley is awaiting approval for a deal that will give it majority control of its onshore securities arm, while JPMorgan Chase & Co received the green light to set up a majority-owned brokerage joint venture.

Still, it could be a risky proposition amid an escalating trade conflict between China and the U.S., according to industry experts and analysts.

Beijing has threatened to retaliate against the Trump administration's plan to place tariffs on an additional $300 billion in Chinese products. Analysts say that could involve targeting individual U.S. companies, as has been the case with FedEx Corp. The delivery company has been under investigation by Chinese authorities over packages destined for a Chinese telecommunications firm.

Goldman, which waited for more than a year to apply in part to sort out regulatory hindrances, declined to comment on the trade dispute.

Beijing officials have said they are opening up the country's financial sector despite the trade war. Authorities have given permission to a handful of foreign firms to own majority stakes in mainland banking, securities and insurance companies. Before 2017, Western financial companies could operate in China only as a minority partner in a securities joint venture with a local company.

Expanding in China has come slower than many foreign companies hoped, in large part due to regulatory restrictions. JPMorgan Chase, Nomura Holdings Inc. and UBS Group AG are among the companies that have been allowed to own majority stakes in their Chinese ventures. Approvals for Goldman and Morgan Stanley could take months.

Some approvals for foreign financial companies came at key moments in U.S.-China trade negotiations, as Beijing aimed to show goodwill toward the U.S., according to analysts.

Goldman had waited to apply, in part to figure out a way to meet the Chinese securities regulator's requirement that majority owners have at least 100 billion yuan ($14.2 billion) in net assets in the entity the apply with.

Goldman spokesman Edward Naylor declined to disclose details on how the firm met the requirement, including which entity the firm applied with. Industry executives and analysts had lodged complaints that the threshold is unnecessarily high, meaning only a handful of foreign securities firms operating in the China market could meet it using their regional entities.

In recent months, China sped up its timeline for opening up the financial sector. It said it would let foreigners freely invest in futures dealers, brokerages and life insurers in 2020, one year ahead of Beijing's previous schedule.

The accelerated timeline comes in part as Beijing wants to attract more foreign investment amid downward pressure on the economy.

Goldman's plan is to move its local partner's assets into the joint venture, in order to consolidate its mainland holdings. The restructuring will require various regulatory approvals.

Mr. Naylor said Chinese businessman Fang Fenglei and Legend Holdings, the two largest Chinese shareholders of Gao Hua Securities are expected to decrease their stakes. "The endgame for us has always been 100% [ownership]," he said.

Write to Chao Deng at Chao.Deng@wsj.com

(END) Dow Jones Newswires

August 21, 2019 09:04 ET (13:04 GMT)

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