HONG KONG/SHANGHAI (Reuters) - Western banks are seeking clarification from China’s securities watchdog on proposals to allow them to take over their onshore securities ventures, amid concerns about high asset value requirements and limits to ownership by non-financial investors.

FILE PHOTO: An advertising board (L) showing a Chinese stone lion is pictured near an entrance to the headquarters (R) of China Securities Regulatory Commission (CSRC), in Beijing, China, September 7, 2015. REUTERS/Jason Lee/File Photo

Giving foreign financial firms a controlling stake in their China securities joint ventures is a key part of China’s pledge to ease foreign ownership curbs, especially in the country’s trillion-dollar financial sector.

But draft rules released for consultation last month by the China Securities Regulatory Commission (CSRC) could have the opposite effect and stymie broadening participation, people with knowledge of the matter warned.

Under the proposed rules, controlling shareholders must have a net asset value (NAV) of at least 100 billion yuan ($16 billion), and non-financial Chinese investors would be limited to a one-third shareholding.

If the NAV rule applied to the Western banks’ local units, as opposed to the global entity, most international banks would be ruled out.

Bankers are rushing to submit requests for clarification of the rules by Sunday, when the consultation period closes.

Lyndon Chao, head of equities at the Asia Securities Industry and Financial Markets Association (ASIFMA), which represents global banks in Asia, said that while China had opened the door to foreign capital it appeared to be reluctant to welcome overseas securities firms.

“(The door) welcoming foreign securities firms to enter China onshore on a level playing field appears less open than what we had originally thought, based on the second consultation and the net asset value requirement for firms seeking majority ownership,” he said.

Bankers are unhappy too with the one-third limit on non-financial Chinese investors, which means that if a Western bank linked up with such an investor, it would still need to find another partner for the remaining 16 percent.

“That doesn’t fly with the spirit of what was intended based on the comments from different Chinese regulators,” said one person with knowledge of the proposed rule changes. “Three may be a crowd.”

The people who spoke to Reuters declined to be named due to sensitivity of the issue. They said the final rules, expected to be announced by end June, could change to reflect their concerns.

CSRC did not immediately respond to a Reuters request for comment.

China surprised bankers and lobbyists in November when it said foreign investment banks could raise stakes to 51 percent in their securities joint ventures, which offer underwriting and trading services, from a 49 percent cap.

Banks including Goldman Sachs GS.N, Morgan Stanley MS.N and UBS UBSG.S run joint ventures with varying degrees of operational control but all have pushed for majority ownership. In 2016, a lack of control was a factor in JPMorgan's JPM.N decision to sell out of its joint venture.

($1 = 6.3125 Chinese yuan renminbi)