China Regulator to Retain Control of CEFC Brokerage Until 2020

Guotai Junan will control the brokerage firm’s business for no longer than 12 months.

China’s financial regulators said on Friday that state-owned Guotai Junan Securities Co would take control of CEFC Shanghai Securities Co due to irregularities and the serious credit risks it poses, in a rare takeover of a domestic broker.

Guotai Junan will control the brokerage firm’s business for no longer than 12 months, the China Securities Regulatory Commission (CSRC) said. The move was expected after its founder Ye Jianming, once one of China’s most powerful tycoons, was detained by authorities on suspicion of economic crimes last year.

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A takeover by Chinese regulators of brokerage arm of embattled energy conglomerate CEFC China Energy Co has hurt shares of three companies linked to its founder on stock exchanges in Hong Kong.

CEFC China is China’s fourth-largest oil conglomerate, which came under regulatory and financial pressure after it spent years pumping its leveraged investments into sprawling assets abroad.

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CEFC Shanghai, which is the flagship subsidiary of CEFC China Energy, has also been seized by a Chinese court, under the request of creditors.

Door opens for $50 billion cake

Securities firms in China, which are mostly dominated by state-owned banks, generated more than $80 billion in revenue in 2018, official data show.

China has repeatedly pledged to open its financial markets, including allowing foreign firms to own as much as 51 percent of their securities ventures, up from the current 49 percent ceiling.

Global investment banks, including Morgan Stanley and UBS, were seeking a controlling stake in its Chinese business under new rules. Having spent years operating with limitations, where they were not authorized to surpass a 49 percent limit, both banks also signaled a desire to take majority stakes in their Chinese ventures in order to expand their mainland’s business.

Chinese President Xi Jinping said last year that the nation would accelerate the opening up of its financial sector, including measures to facilitate foreign access to the Chinese insurance industry and easing restrictions for entry and expansion of foreign financial institutions.

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