A sign is displayed in the reception of Goldman Sachs in Sydney, Australia. Picture: REUTERS/DAVID GRAY
A sign is displayed in the reception of Goldman Sachs in Sydney, Australia. Picture: REUTERS/DAVID GRAY

New York — Goldman Sachs plans to double its headcount in China over the next five years, provided the Communist Party-ruled nation continues down the path of opening up its financial markets.

The ambition to raise staffing to 600 is part of a five-year plan drawn up by executives at the New York-based investment bank, said a person familiar with the matter, who asked not to be identified discussing confidential plans.

Soon after he was elevated to the top job in 2018, CEO David Solomon asked for a detailed strategy for expanding in China over the next half-decade. Foreign banks are preparing to push into the world’s second-largest economy, vying to tend its growing wealth and compete for as much as $9bn in commercial and investment banking profits, Bloomberg Intelligence estimates.

Foreign competition

China, meanwhile, is looking for fresh investments to cushion its economy and to attract foreign competition to sharpen the domestic financial industry.

President Xi Jinping has set plans to let foreign investment banks take full control of units in the country by the end of this year, part of an opening of its $45-trillion financial market that includes asset management and insurance.

Goldman is applying to boost its stake in an investment bank joint venture based in mainland China to 51% from 33% and will go for full control if permitted by year-end.

Goldman spent 2019’s latter half honing its expansion plan, the person said. In behind-the-scenes talks, senior government officials signalled growing urgency to use capital markets, rather than the country’s banking system, to support corporate China as a trade dispute with the US weighed on the economy.

China unveiled its plan for opening up its financial market in late 2017, and last July, it decided to push forward its timetable by a year. Yet after meeting with top bankers in November, Xi warned that the opening will be on China’s terms, vowing to safeguard the nation’s “financial sovereignty.”

“The leadership in China understands the value of global capital flows,” Todd Leland, co-president of Goldman’s Asia- Pacific operations outside Japan, said. The government’s pledges provide a “robust framework” to build a bigger business. He declined to comment on the bank’s headcount target but acknowledged that hiring will be competitive.

“All of us are trying to get to 100%, so the race for talent is going to be significant,” he said. “Whether you’re able to compete and compensate people and find the right individuals that are a fit, that’s by far the biggest challenge.”

Goldman’s profits reported from its joint venture are limited. In 2018, it made 69-million yuan from the unit in which it holds a minority stake. Part of the bank’s expansion in China will be driven by “explosive” growth in asset management, Leland said. Chinese households are sitting on about 90-trillion yuan in investable assets.

Clients increasingly want to diversify away from cash and real estate, as China is phasing out guaranteed wealth management products that have dominated its investment scene. Goldman will add to its investment banking, markets, private wealth and merchant banking operations on the mainland, betting an acceleration in capital market reforms will drive growth in equity and debt markets as well as M&A.

But its rivals aren’t sitting idle.

New York-based JPMorgan Chase is planning to expand its office space in China’s tallest skyscraper by a third. UBS, based in Zurich, has set its sights on doubling investment banking headcount in the next three to four years.

Japan’s Nomura is initially building an operation to serve wealthy Chinese clients onshore, but will also expand investment banking as its boosts staff to 500 by 2023.

Bloomberg