CHINA'S agreement to further open its financial industry to foreign firms should be seen as a logical extension of the government's market reforms, and not as a victory for the United States, analysts and observers said.

Chinese negotiators led by Vice Premier Wu Yi agreed to lift a moratorium on overseas firms buying into domestic brokerages and triple the quota for stock purchases by foreign institutional investors to US$30 billion.

"I wouldn't call these concessions,'' said Jim Antos, a Hong Kong-based analyst at Bear Stearns Cos. "The Chinese Government has made tremendous progress in the past two or three years to modernize the financial sector, and they have done this in an extremely controlled and careful manner. Opening the door for foreign brokerages right now could very well be considered from a control point of view.''

U.S. Treasury Secretary Henry Paulson has been pushing China to give more access to financial services than it offered in order to join the World Trade Organization in 2001. Since that time, China's markets have rebounded as the nation's more than 10 percent annual economic growth boosted private wealth, spurred loan demand and fueled a record stocks rally.

The value of shares in China surged more than sixfold in the past two years to US$2.4 trillion, making the nation the world's fifth-biggest equity market. The Shanghai and Shenzhen exchanges gained in size as local investors sought higher yields than they're getting on bank deposits, and as the government encouraged companies to sell stock at home rather than in overseas markets such as Hong Kong.

"You have to remember that 10 years ago, China's stock market was not important to Wall Street, or the Chinese economy, and the whole financial system was in precarious health,'' said Andy Rothman, China strategist for CLSA Ltd., and a former economic official at the U.S. Embassy in Beijing. "The WTO agreement looked like huge concessions at the time.''

China didn't have to open its brokerage industry. The China Securities Regulatory Commission in September halted investment in securities companies by international firms, saying that domestic brokerages needed time to restructure.

Profit at domestic brokerages may quadruple to US$13 billion this year, according to a report Friday by Guotai Junan Securities Co., fueled by record trading volumes and the stock market rally.

"A slice of this piece of cake is what foreigners want the most,'' Liang Jing, a Shanghai-based analyst of the brokerage industry, said.

Morgan Stanley and Merrill Lynch, the No. 2 and No. 3 U.S. securities firms by market value, as well as JP Morgan Chase & Co. and Hong Kong-based CLSA, the biggest independent broker in Asia, have said they want to establish partnerships in China.

Only Goldman Sachs Group Inc., Paulson's former company, and UBS AG won approval to set up ventures before the ban. Goldman has helped arrange US$1.7 billion of share sales this year in China, where most foreigners are not allowed to own yuan-denominated A shares. Having a domestic brokerage gives overseas banks the channels they need to sell stock.

"The crucial next step is for China to clarify how exactly it'll allow foreign investors buy into A-share brokers,'' Rob Morrison, chief executive officer of CLSA Ltd., said. "We want to know if the UBS-Beijing Securities deal will be the model going forward, or if that was just a one-off.''

UBS and Goldman used different structures to set up in China because no clear guidelines exist. Zurich-based UBS will initially own 20 percent of UBS Securities Co. and has a written agreement that its Chinese partners will sell their stakes. Goldman controls its brokerage venture partly through a loan made to the chief executive officer Fang Fenglei. It owns no equity in the brokerage.

Even after China lifts the moratorium, it will take time for global firms to get the licenses they need, said James Zimmerman, chairman of the American Chamber of Commerce China.

"If it's going to take foreign securities firms two years to get the necessary approvals and huge capital requirements to begin operations, then that's not effective market access,'' he said.

UBS is still waiting for final approval for its venture, after announcing the deal 20 months ago. (SD-Agencies)