CHINA has banned the establishment of new brokers as authorities move to overhaul the scandal-ridden industry.

The China Securities Regulatory Commission also halted network expansions by existing domestic securities firms, which means they can't add any branches, sub-branches, financial-service units or other outlets.

China started a campaign in early 2004 to revamp its securities industry, long plagued by insider trading and financial misconduct, hoping to reverse multi-billion yuan losses at brokers by mergers and acquisitions.

Regulators have shut down more than a score of brokerage houses in the past two and a half years, urged healthier firms to take over smaller ones and prompted shareholding restructuring that involved outside investors.

Following the reforms and renewed investor confidence, China's stock markets pulled out of a four-year slump, and securities houses returned to a profit by collecting higher commission fees.

The improved conditions caused foreign financial firms such as Goldman Sachs Group Inc and UBS AG to train their sights on ownership investments in Chinese brokers.

Goldman set up an investment-banking venture in 2004 with Beijing Gaohua Securities Co, becoming the first overseas firm to tap the domestic capital-market business.

UBS in June won approval to set up UBS Securities Co, revamped from troubled Beijing Securities Co, as the first Sino-foreign joint venture with a stock-brokering license.

But attempts by HSBC Holdings Plc, Credit Suisse Group and Merrill Lynch were suspended in mid-year as the regulator began mapping out rules to govern such investments to avoid destabilizing China's financial system.

"I don't believe the ban will be lifted by the end of the year," said a senior analyst at a local broker. "Foreign investors will still have to wait for a clearer regulatory picture, and that may be a protracted process."

Source:佚名