There is some bad news for foreign investment banks eager to fish in the mainland's equity market: not many are biting.
More than half of the joint ventures set up by international investment banks on the A-share market have yet to secure a single underwriting business so far this year.
According to data from Thomson Reuters, only four of the existing Sino-foreign joint venture investment banks, including that of UBS Securities, secured underwriting deals for A-share initial public offerings in the first 10 months. Factoring in refinancing deals, only five of them have done business so far this year while the remaining enterprises failed to collect any fees related to sponsoring equity financing deals.
China's securities sector is off-limits to foreign players, as Beijing strives to protect home-grown brokerages. Overseas players, barred from offering brokerage services to local clients, can only partner with local securities firms to set up Sino-foreign investment banks if they want to explore the A-share market.
Beijing accelerated approvals to joint-venture investment banks early this year with three big names - Morgan Stanley, Royal Bank of Scotland and JP Morgan - establishing their ventures with local brokerages to vie for a share of the mainland's strong IPO market.
Analysts said the lacklustre performance by joint-venture investment banks was a warning sign to foreign investors bullish on the mainland capital market.
"The low transaction volume is quite disappointing for foreign players," said an official with one of the banks, who asked not to be identified. "Frankly, business fell far short of the joint ventures' early expectations."
It was thought that the foreign powerhouses, with their financial strength and rich experience, would give the joint ventures an edge in drawing clients. But the steady rise of home-grown brokerages and a lack of proper understanding of the local market have impeded their growth.
More than 200 IPOs hit the mainland stock exchanges in Shanghai and Shenzhen this year, raising about 240 billion yuan (HK$292 billion). The five IPOs in which the four joint-venture investment banks participated raised 13.3 billion yuan, less than 6 per cent of the total.
The Sino-foreign investment banks are not the only ones stuck in a rut, however. In a PricewaterhouseCoopers survey of 29 joint-venture mutual fund management firms on the mainland, 11 asset managers said their performances in the past three years fell short of expectations, with nine forecasting zero or negative revenue growth this year.
But analysts said difficulties for foreign players would prove temporary and they would eventually reap profits from the fast-growing equity market amid further liberalisation.
"China is gradually liberalising the capital market and for foreign competitors, this is just in the initial stage," said Chen Xuebin, a professor of finance at Fudan University. "It will take some time before the market is fully liberalised and foreign investors can make huge profits."
The setting up of an international board at the Shanghai Stock Exchange, as promised by the government in 2009, could benefit joint-venture underwriters, since it would be easy for them to attract foreign IPO candidates. However it has yet to be officially launched.
RBS said it had approached European candidates interested in listing on the pending international board, which would allow overseas corporate giants to be traded by mainland investors.
Stephen Bird, chief executive of Citigroup Asia-Pacific, said in June the group's pending joint-venture investment bank with Shanghai-based Orient Securities would target not only domestic companies but also international firms, helping them raise capital from the local market.
The two companies signed an agreement to set up the venture and are awaiting regulatory approval.