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China Securities Industry Report (Merger & Reorganization), 2006-2007 (Chinese Version)
Research In China, March 2007, Pages: 170
After over a decade of development, influenced by the changed backgrounds both at home and abroad, especially the implementation of Securities Law of PRC, great changes are taking place in China securities industry, from participation bodies, market system, business pattern, market management and market maturation to opening extent.
China's entry into WTO intensifies, on the one hand, the competitiveness of China securities industry and poses a direct threat to China securities dealers; but on the other hand, it also directly promotes China securities market to be further opened and accelerates the step of China securities market to get internationalized. Generally speaking, China's entry into WTO is helpful to advance the upgrade of China securities industry as well as the maturation of China securities market.
In 2006, the total trading value of listed stocks in Shanghai and Shenzhen Stock Exchanges reached RMB 9.046889 trillion, increasing by 186.22% over last year, and the stock-raised capitals accumulated to RMB 220.443 billion which created a new record in the history. By the Dec 29, 2006, there are totally 1421 listed companies in Shanghai and Shenzhen Stock Exchanges, with a total market value of RMB 8.94039 trillion, up by 175.68% over previous year, and accounting for 49.62% of GDP. As the split-share reform of Shanghai and Shenzhen Stock Exchanges comes to an end, only 40 companies haven't had split-share reforms yet, and the market value of split-stock reform takes 97.85% of the total. Moreover, in 2006, there are 5.1768 million new-account investors in these two exchanges and total number of account openers for investment was approximately 80 million by 2006.
As China's economy develops steadily and the government constantly opens the bond market, China bond market will continuously enlarge in scale. In 2006, the total market trading value in exchanges was RMB 157 billion, a dramatic decline of RMB 127 billion over 2005; the total cash turnover in value in inter-bank markets was RMB10.9898 trillion, an increase of 21% over 2005. Bond market turns now increasingly important. According to Goldman Sachs, the bond market scale will reach USD4.5 trillion in ten years, which probably equal the current bond market scale in US.
Wholly speaking, the profitability of China futures market has no essential changes and such problems as overabundance of futures companies, handling charge war, disproportional income of futures companies & exchanges as well as a wide gap in transaction growth compared to international market still exist, so futures industry will continue the integration in the year of 2007. Now, Futures Company has been confirmed to be the main body of China financial futures exchange as well as the agency of stock index futures transaction. Therefore, industrial integration is facing both big pressure and great drives.
China's securities dealers are mostly founded by state-owned enterprises or local governments, so like the listed companies, for securities dealers, state-owned property rights take the priority which causes a serious problem of internal person control. The appearance of a large number of state-owned securities is the result of monopolizing rents seeking lease instead of pursuing profit maximum. This causes two different problems: on the one hand, securities industry is overcrowded for entry policies get open but retreat channels are not so good, and meanwhile, as the repeated construction problems are so serious, enormous securities dealers haven't reached the scale economy; on the other hand, the failed securities dealers are not willing to be merged/purchased or liquidated, so they can't stop the loss and retreat from the market timely, which leads to vicious competitions and make the securities industry impossible to maintain necessary profit margin.. So, undoubtedly, it is inevitable for China's securities companies to carry out structural adjustment featured by M & A.
As the reshuffle projects in securities industry, for instance, CITICS's purchase & reorganization of China Securities and the reshuffle of Galaxy Securities, etc, go well, the merger and reorganization of China securities industry come to a climax and market concentration also sees a rapid growth. It is forecasted that about 5-6 large securities dealers with over 60% of market share will appear in China in ten years, and two-thirds of current securities dealers will be eliminated finally.
Although the securities market tends to concentrate towards leading securities companies in recent years, yet, the stable market structure is far off being formed. Presently, securities issue business gets increasingly concentrated year by year, and top 5 securities companies have account for half of market share, but securities brokage is quite scattered. In particular, due to the emerging new transaction forms like internet transaction, plus the entry of new rivals like overseas institutions, the market concentration of securities industry grows not so steadily, which is reflected here by that the market has been lack of a leader with distinctive advantages up to now, and the market segmentation is not so effective as well.
The commercial banks will be strong rivals of securities dealers in securities market in the future. Currently, domestic commercial bands have already engaged in the issue and sales of financing products like national debt, financial bond and short-term financing bond, etc. The assets scale of fund companies has been constantly enlarged in bank system while commercial banks have experience in the sales of finance products like insurance. In addition, the banks have not only set up investment banking departments, but also continuously increase the input into the departments.
By the end of 2006, China finance industry completely opened to outside, which made it much easier for foreign capitals to enter into this market. Apart from Morgan Securities, Goldman Sachs, UBS Securities, Lyons Securities and Daiwa Securities have also come to China, while other overseas giants including Merrill Lynch, Citigroup and Nomura Securities are also seeking opportunities to come to China. The Occident securities dealers with a background of strength, experience and rule making will no doubt gradually control the high-end business. And the securities companies with high-end clients and high-quality resources will be the preferred targets for purchase and reorganization of powerful foreign-funded companies.
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This title is also available in the following language
China Securities Industry Report (Merger & Reorganization), 2006-2007 (English Version)
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