As foreign banks circle, China plots an “aircraft-carrier” defence

CHINA PUT its first domestically built aircraft-carrier into service last December, the culmination of three decades of work. The government hopes for a faster return on efforts to create what it calls an “aircraft-carrier-class securities firm”—ie, an investment bank powerful enough to prevail amid intensifying competition in the country’s capital markets. It is poised to draft its biggest financial force into battle, by allowing giant state-owned commercial banks to enter investment banking.

China has long had its own version of America’s Glass-Steagall separations, which until 1999 barred retail banks from investment banking. China’s commercial banks can neither underwrite stocks nor offer brokerage services, which are left to securities firms—a division that officials believe makes the financial system safer. But now they may grant securities licences to two commercial banks in a trial, as first reported by Caixin, a business publication.

The immediate prompt is foreign competition. After years of dragging its feet, China scrapped foreign-ownership limits in its securities sector last year. Big Western players—such as Citigroup, Morgan Stanley and UBS—have either gained control of existing joint ventures or launched wholly-owned operations. Foreign firms have struggled to make a dent in...