China has given initial approval to an investment banking joint venture by Goldman Sachs.

That is expected to allow the US-based investment bank to have its own investment banking business in the mainland, reported China Daily.

According to a report by the China Securities Journal yesterday, the China Securities Regulatory Commission (CSRC) issued a notice on the matter on Wednesday, saying the commission had agreed to let four Chinese companies launch a new securities company named Gaohua in Chinese. The approval was granted on August 11, but the notice has just been issued.

Gaohua is expected to have a registered capital of 1.1 billion yuan (US$132.8 million), with the four initiators, including Lenovo Holdings Ltd and three venture capital companies in Beijing, each contributing a quarter of the funding.

The four companies are asked to complete relevant preparation for the launch of the new securities firm within a month of receiving approval. And the investment should be paid in cash.

Afterwards, the securities company is expected to set up a securities joint venture in partnership with Goldman Sachs.

CSRC said it had also approved in principle the launch of the joint venture.

It did not give a breakdown of the investment in the venture, but it was reported earlier that Goldman Sachs would hold 33 per cent in the venture, and the other 67 per cent would be held by Gaohua.

An official with Goldman Sachs said yesterday that the company has been continuing with the preparation of the venture and would reveal details after final approval is given to the scheme.

It had been reported earlier that the new venture would be headed by Fang Fenglei, the former deputy chief executive of China International Capital Corp, China's first joint venture investment bank, launched by China Construction Bank and Morgan Stanley. Fang has also taken key positions in overseas investment banking subsidiaries of Industrial and Commercial Bank of China and Bank of China.

Sources with the National Development Reform Commission said that the commission had allowed Fang and his five associates to borrow altogether US$97.75 million of international commercial loans from Goldman Sachs (Asia) Financial Holdings.

The money would be used for equity investment in Gaohua Securities.

According to existing laws in China, the maximum ratio of stakes a foreign firm can invest in a joint venture securities house is 33 per cent.

In spite of the restriction, Goldman Sachs may also get actual control of the venture, such as backing the founders of Gaohua Securities, an industry source said.

Source: China Daily