The Royal Bank of Scotland (RBS) is the first UK bank and the seventh bank internationally to get approval to enter the investment banking business in China. RBS is poised to unveil a financial securities joint venture in China, to capitalise on thriving markets in the engine of Asia’s booming economy. A BBC report states that sources reveal the bank is in detailed talks with Chinese group Guolian Securities, and that the announcement of a deal could come very shortly.?? Such a joint venture would build on minority stakes that RBS already has with two Chinese financial companies, Galaxy Futures and Suzhou Trust. The tie-up with China’s Guolian Securities will allow RBS to manage share sales and issue debt in China’s fast-growing financial markets.

In 2010, initial public offerings in China amounted to around two thirds of the world’s total. RBS’ vision is to bring British, European and US companies to China, and allow Chinese investors to gain access to foreign companies, equities and debt. Foreign companies are not currently allowed to list shares in China but that is expected to change in the near future. Morgan Stanley, UBS, Deutsche Bank, CLSA Asia Pacific, Credit Suisse and Goldman Sachs have also received approval to set up securities ventures in China. A tie-up with a Chinese partner is a pre-requisite for a foreign bank wanting to enter the securities business.

RBS will have a 33% stake in the venture, which will be known as “Hua Ying Securities”. Hua means “Chinese”, while Ying means “British”. RBS wishes to be a top bank in China, and the joint venture will be based in Wuxi, Jiangsu Province, about two hours away from Shanghai. RBS has thus far declined to disclose how much the bank had invested in the venture.

RBS, 83% owned by the taxpayer after being bailed out by public money at the height of the financial crisis, has in fact been seeking a new Chinese securities joint venture for some time. The government has said it will ultimately sell its stake in RBS, but is unlikely to do so until the Independent Commission on Banking, due in September, reports its findings.

RBS is seeking to shore up its business in China, after it was forced to sell a stake in Bank Of China in 2009 for 1.6bn pounds. China is a core market for RBS in Asia as well as globally. RBS had intended to continue to invest significant resources in building their wholesale and investment banking businesses there.?? Therefore, in addition to their existing joint venture interests in Galaxy Futures and Suzhou Trust, they have also seeking a securities joint venture.”

RBS’s formidable move comes as many major international banks are focusing on China’s market in securities – tradeable financial assets such as equities and bonds – for growth.?? Analysts have said this drive had been sharpened in the wake of economic fragility in Europe and the United States. UBS, Credit Suisse, Goldman Sachs, Morgan Stanley and Deutsche Bank are among global banks with securities joint ventures in China. RBS has sold 311 RBS branches in England and Wales, and seven NatWest branches in Scotland, to Santander of Spain, while also disposing of assets such as Linea Directa in Spain, Sempra Metals, the oil and European energy business venture, and GMS, its payment processing business that includes the WorldPay brand. RBS has thus far quit retail branch banking in several overseas territories where it lacked major scale such as Taiwan, Hong Kong and Indonesia.

A successful joint venture will allow RBS to take part in that country’s thriving domestic capital markets, such as issuing debt and equities, underwriting bonds, etc. The rationale is clear. Recent data this month showed that Chinese industrial output exceeded forecasts, highlighting that the country’s economy had remained buoyant despite government efforts to clamp down on bank lending and property speculation.?? RBS has also signaled that it wishes to withdraw from retail banking in many overseas locations but in many cases it wishes to add to investment banking operations where profitable overseas.