China’s Brokerage Sector Poised for Major Consolidation
Beijing’s Call to Action
China’s $1.6 trillion brokerage sector is on the cusp of a significant transformation. The government is urging industry players to merge and create world-class investment banks that can rival global giants like Goldman Sachs and Morgan Stanley. This push for consolidation is expected to gain momentum in 2025, following the massive merger of Guotai Junan Securities and Haitong Securities, which will create the industry’s largest firm by assets.
Shanghai’s Ambitious Plan
Shanghai, home to China’s largest stock market, has announced a three-year plan to support asset revamps of the city’s listed companies. The plan highlights the need to expedite brokerage mergers to construct top-tier investment banks. The goal is to cultivate two to three investment banks that can compete on the global stage by 2035.
Industry Analysts Weigh In
“The consolidation in the brokerage industry is accelerating,” said Xu Yingying, an analyst at Caitong Securities. “The policy direction is crystal clear: boosting competitiveness by mergers and acquisitions as well as an optimization of the allocations of state-owned financial assets.”
Mergers and Acquisitions
At least six merger plans have been rolled out since the government’s initiative was announced. Brokerages with common ownership are likely candidates for consolidation. Speculation is rife that China International Capital Corp will merge with China Galaxy Securities, while Hua An Securities and Guoyuan Securities may also combine forces.
The Need for Consolidation
“There are too many brokers relative to the size of the market, and all this is leading to very tough competition,” said Michael Chang, head of Asian financials at CGS International Securities Hong Kong. “So across the industry, there is a belief that you have to consolidate. If you consolidate, you can have economies of scale, better efficiency ratios, and… as you become bigger, you should be more able to compete against the global investment banks.”
The Benefits of Consolidation
A consolidated brokerage industry with larger players would help the sector compete in terms of scale and diversity of revenue sources. Chinese brokers are too reliant on stockbroking and proprietary trading, which makes them vulnerable to market fluctuations. Global rivals earn between 30 and 50 per cent of their revenue from asset- and wealth-management businesses.
The Future of China’s Brokerage Sector
Chinese brokerages need to grow to innovate technologically and satisfy clients’ desire to diversify their investments. The country’s evolving economic landscape will fuel more equity financing as well as demand for access to overseas investments and wealth-management products. As the industry consolidates, it is likely to lead to stronger brand value, improved efficiency ratios, and the ability to attract more customers.
Leave a Reply