Nomura Holdings Inc. is overhauling its China business after losses there snowballed, reflecting setbacks to plans by Japan’s biggest brokerage to expand on the mainland.

The firm’s Shanghai-based joint venture is reassessing its strategy, according to people familiar with the matter. Goals unveiled four years ago to raise its headcount to 500 and become a fully licensed securities house by the end of 2023 aren’t likely to be achieved, the people said, asking not to be identified because the matter is private. Nomura Orient International Securities Co. has cut jobs and seen a number of departures following a management reshuffle earlier this year, the people added.

The venture, which was launched right before the pandemic, has since had to contend with China’s slowing economy and stumbling stock market. For Chief Executive Officer Kentaro Okuda, the faltering expansion presents another hurdle in his quest to find new sources of growth after net income fell for three straight years. Nomura reports quarterly earnings on Friday.

“It is great timing to review, reassess the business” and adjust priorities, said Kenji Teshima, head of Nomura’s China committee, which guides the firm’s direction on the mainland. China’s Covid restrictions “severely limited the ability to grow the business” and the market environment has since “changed dramatically,” he said in an interview.

While Nomura’s struggles in China are shared by other global firms that have had to temper their initial exuberance, its losses have exceeded many of them. The lack of profits has raised concerns by the venture’s state-backed partners even as client accounts and assets under management continue to grow, the people said.

Since its launch in late 2019, Nomura Orient International’s bottom line has kept worsening. Losses more than doubled last year to a record 225 million yuan ($31 million), filings show.

Among major firms operating on the mainland, only Credit Suisse’s joint venture fared worse. Global banks from Morgan Stanley to Goldman Sachs Group Inc. have scaled back ambitious expansion plans and profit goals amid the deteriorating geopolitical climate and economic outlook in China. Japanese companies are doing similar, a recent survey showed.

Read More: Wall Street’s Biggest Banks Face a Harsh Reality Check in China

Headcount at Nomura Orient International peaked at 281 in July before dropping to 259 at the end of September. Several department heads, including in wealth management, compliance and risk management, have left this year amid high market turnover, though they have since been replaced, the people said.

“We have to be at the appropriate size to our business,” said Teshima, an investment banker who replaced Toshiyasu Iiyama as China Committee head earlier this year. The firm should only increase headcount as revenue grows, he said.

Managing wealth for the rich in China was one of three growth areas laid out in 2019 by Koji Nagai, then Nomura’s CEO and now chairman, after the country began to open up its financial industry to foreign players.

“We tried to be very domestic in the first place,” Teshima said. A focus on cross-border business is probably a better way to serve clients in China, who open accounts because they expect Nomura to bring international content to them, he added.

With its application for an investment banking license still pending, Nomura may also look at options like asset management, financial advisory as well as trying to facilitate investments across the mainland for qualified institutional investors, according to people with knowledge of the matter.

“The Chinese economy may have strayed from the picture originally painted by Nomura,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. “It’s important to change management policy in line with the environment.”

Shares of Nomura fell 2.2% on Thursday in Tokyo, paring this year’s gain to 15%. Japan’s benchmark Topix index is up 18% this year.

Nomura Orient International managed about 16 billion yuan in assets as of September, an increase of about 48% since December. The number of accounts climbed almost 24% in the same period.

“With a presence in China for over four decades since 1982, we have consistently sought to contribute to the development of the country’s capital markets and service the evolving needs of clients,” Nomura said in an emailed statement. “We are working constructively with our joint venture partners to determine the most viable path for our onshore business to achieve this long-term objective.”

Nomura appointed Mitsutaka Kitamura in January as general manager of the venture, taking over from Sun Dongqing, who became vice chairperson. Sun was a star hire from China International Capital Corp. in 2019. She had helped to create a wealth management team at CICC, one of the mainland’s largest brokerages, and led the operation herself from 2011 to 2017, according to filings.

However, her tenure managing Nomura Orient International was bumpy, according to the people. Sun had clashed with senior managers over matters such as how to execute its wealth management services and cooperate with other group units, the people said. Nomura declined to comment on “hearsay.”

Masao Hyonotani, who served as first deputy China Committee head from 2021 to 2022, undertook an internal review that concluded the unit’s wealth operations were inadequate, the people added.

Nomura said it isn’t in a position to “confirm, deny or discuss details of such internal reviews which are confidential in nature.”

Meanwhile, Nomura’s state-backed partners, Oriental International (Holding) Co. and Shanghai Huangpu Investment Holding (Group) Co., who hold a combined 49% stake in the joint venture, have been engaged in discussions on how to revive the business, the people said.

Calls to Oriental International and the local authority that oversees Shanghai Huangpu Investment went unanswered.

“They want to see a profitable situation as soon as possible. So do we,” Teshima said. “They supported the initial plan because that was the right thing to do at that time. Now they also appreciate the environment is changing.”

--With assistance from Amanda Wang, Emma Dong, Ambereen Choudhury, Yasutaka Tamura and Winnie Hsu.

(Updates with fund manager’s comments and shares in the 13th and 14th paragraphs)