China is looking to open up its financial sector to foreign banks. It is believed that Chinese government may allow US investment banks to run their branches in the country independently. Currently, banks are required to collaborate with Chinese companies to operate.

According to The Wall Street Journal, the likely decision is pursuant to the ongoing trade and investment discussions with the US. According to existing rules, the foreign financial services companies are required to form a joint venture for domestic brokerage companies. The US investment banks then hold minority stakes for engaging in business in the mainland.

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The discussions are said to be in preliminary stage. Any decision reached will be vetted by the Chinese regulators. It would also need ratification from the US senate.

The US investment banks stand to benefit massively from any such new development as they have faced constant decline in their market share in China. According to Dealogic, their share fell from 43 percent to 14 percent since 2000.

According to a study conducted by McKinsey & Co., foreign investment banks hold less than 5 percent market share in investment banking and other securities business conducted in China. Chinese banks currently hold nearly 61 percent market share in total investment banking revenue generated in Asia, excluding Australia and Japan. Chinese businesses prefer to collaborate with domestic banks over foreign banks.

US investment banks have struggled to capture a meaningful share in the Chinese market. Holding minority stakes means that the banks do not have a free hand in decision making. In cases such as JPMorgan First Capital, the Chinese partner First Capital expressed its intention to buy out JPMorgan's share. 

TagsFirst Capital, jpmorgan, investment bank