Last checked at 
* CITIC plans to boost earnings with asset managementbusiness, derivatives trading
* Beijing expected to further relax market controls inmonths, years ahead
* Mainland brokerages using Hong Kong as springboard for newbusinesses
By Samuel Shen and Kazunori Takada
SHANGHAI, March 27 (Reuters) - Wang Dongming, chairman ofChina's biggest brokerage CITIC Securities Co Ltd, wasso impressed by the Charles Ellis bestseller "The Making ofGoldman Sachs" that he called for a Chinese translation andurged his employees to read it.
Wang is now busy remodelling his Beijing-based brokerageafter Goldman Sachs Group Inc by expanding into assetmanagement, trading complex derivatives instruments andnurturing overseas businesses.
Hit by a languishing Chinese stock market and a freeze ininitial public offerings since last year, mainland securitiesfirms are diversifying away from their traditional businesses ofstock broking and underwriting.
"For Chinese investment bankers, what Goldman hasexperienced in the past is very likely what we will go throughin the future," Wang said in the foreword of the book's Chineseedition published by a CITIC affiliate, referring to Goldman'sinternational expansion since the 1970s.
CITIC will beef up its asset management businessin Hong Kong and venture into developed markets such asSingapore, Britain and Australia, sources with knowledge of theplan told Reuters.
It will launch a host of alternative investment funds, acategory that includes hedge funds, and increase market-makingtrades in fixed income and equity products, the sources said,declining to be identified because they are not allowed to speakto the media.
"These businesses are not new for Wall Street banks but havebarely taken off in China," said one of the sources. "Expandingthose businesses would improve CITIC's revenue structure andgive the company an edge over domestic rivals once the mainlandmarket is deregulated."
A spokeswoman at CITIC declined to comment.
In a sign of changing times, CITIC leapt to the No.1 spot asAsia's top mergers-and-acquisitions adviser in the first quarterfrom 18th a year earlier, data by Thomson Reuters shows,knocking Morgan Stanley from the top slot and rankingahead of Goldman itself.
Chinese securities firms are also venturing into Westernmarkets to compete with global names. But their lack ofexperience means any action, for now, will be limited to meetingthe needs of Chinese companies operating in those countries.
So far, CITIC has been the most acquisitive of China'sbrokerages overseas.
The firm last year agreed to buy Credit Agricole's entire stake in Asia-focused brokerage CLSA for $1.3 billion. Italso set up a brokerage unit in the United States.
Their global ambitions come at a time when even Wall Streetgiants such as JPMorgan Chase & Co are struggling tonavigate a post-crisis world where clients trade less andregulations and capital rules squeeze margins.
One of the challenges facing Chinese securities firmscompeting in overseas markets is their domestic corporateculture and lack of connections with prominent local businessexecutives.
Unlike major Wall Street banks, most of the staff areChinese nationals and many of their top brass have little or noexperience working for global banks.
State-controlled investment banking venture ChinaInternational Capital Corp ventured into the U.S. market in2007, but has remained a niche player there.
CITIC has tried to overcome this problem by hiring a numberof foreigners. Its Georgetown-educated chairman hired TatsuhitoTokuchi, a veteran banker at Japan's Daiwa Securities Group Inc, to head CITIC's investment banking. That is the mostsenior role for a foreigner at any Chinese brokerage.
CITIC, which has warned of a 66 percent slump in 2012profit, will report its annual financial results on Wednesday.
BATTLE FOR HONG KONG
Brokerages are starting to expand their product offerings inanticipation of further loosening of market controls by Beijing,which plans to introduce derivatives such as bond futures andstock options as soon as this year.
As Chinese brokerages unclip their wings outside themainland, Hong Kong has quickly become a major battleground forbusiness.
Of the Asian equity commissions paid by institutions tobrokers, more than 40 percent originated with trades of HongKong and Chinese stocksa study by Greenwich Associates shows.
Most of China's bigger brokerages, including HaitongSecurities Co Ltd and EverbrightSecurities Co Ltd, have already set up operations inthe former British colony.
CITIC recently launched its prime brokerage business in HongKong serving global hedge funds, locking horns with banks suchas UBS AG and Citigroup Inc.
CITIC also plans to ramp up its derivative products businessin Hong Kong, an area currently dominated by Western banks suchas BNP Paribas SA and Goldman, which alone earned morethan China's 114 brokerages combined last year.
While CITIC still faces a long road ahead before it cancompete with global rivals, its moves into new businesses suchas derivatives will give it a key advantage in its home marketwhen Beijing further loosens its grasp on capital markets.
"CITIC won't be able to challenge the dominance of Westernbanks in this area, but such a move would enable the company toaccumulate experience," said Lian Ruiqing, analyst at XiangcaiSecurities Co. "That would give CITIC a first-mover advantagewhen the derivative market at home is further deregulated."
Chinese regulators have recently allowed brokerages toexpand their margin trading and short selling businesses, andwill soon let them market mutual funds and act as market makersin the fledging over-the-counter equity market.
