Citigroup plans to establish a China-based investment bank

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Citigroup plans to launch an investment banking arm in the country and deepen its involvement in China’s financial markets, even as rivals grow cautious in the country.

A major U.S. bank plans to launch a wholly owned subsidiary based in China by the end of the year, according to people familiar with the matter. The venture will expand Citi’s China operations, which already include corporate lending and other banking services.

Citi’s securities license application will be conditionally approved in late December, allowing the new unit to begin hiring employees, according to documents posted on the China Securities Regulatory Commission’s website and people familiar with the matter. The decision has been made.

Reuters first reported the application and other details of Citi’s expansion plans. Citi declined to comment on the application.

The move comes as other large U.S. banks are becoming more cautious about their operations in China. Goldman Sachs CEO David Solomon, speaking at the Financial Times’ Global Banking Summit in November, said the bank is reducing its domestic operations as tensions between the U.S. and China rise. He said it is shrinking.

Five years ago, Mr. Solomon said, Goldman was implementing a strategy focused on “growth in China at all costs.” “It’s now a more conservative approach, perhaps cutting back on some of the funding simply because there’s more uncertainty.”

Western banks are struggling to gain traction in China as geopolitical tensions and a slowing Chinese economy undermine efforts to enter one of the world’s biggest initial public offering markets.

Official data shows that foreign investment banks worked on three of the 313 IPOs in China last year. Goldman Sachs and JPMorgan Chase & Co. have completed only three IPOs in Shanghai since 2021, when they became the only two U.S. banks to open wholly-owned investment banking units in China.

The Chinese government’s increasing intervention in the financial sector has also made foreign banks reluctant to expand their footprint in the world’s second-largest economy. In recent years, China’s equity and banking regulators have asked foreign banks in Shanghai and Beijing to learn from President Xi Jinping’s tenets of Xi Jinping Thought while cutting salaries as part of the Common Prosperity Movement.

Citi CEO Jane Fraser has repeatedly emphasized the bank’s commitment to its China business. Mr. Fraser traveled last year to meet with Chinese regulators and was one of a number of top U.S. executives to attend a dinner with Mr. Xi in San Francisco in November.

Citi, which previously provided investment banking services through local partners, applied for a Chinese brokerage license at the end of 2021. The application is pending due to China’s data law passed in 2021. The law requires standalone infrastructure for foreign companies to launch services. Securities business.

Chinese regulations also require foreign owners to employ at least 30 employees. Citi plans to expand hiring at its China operations beyond minimum requirements, according to people familiar with the matter.

The bank’s China expansion plans come as Citi is undergoing its biggest reorganization in more than a decade, in large part to reorganize its operations around business lines rather than geographic regions.

Citi is expected to reveal details of the reorganization when it releases its financial results later next week. Hundreds of job cuts have already been announced, with thousands more expected in the coming months.