World Economy

China Brokers Under Threat

China Brokers Under ThreatChina Brokers Under Threat

China’s securities firms, which have been struggling to diversify beyond volatile revenues from margin lending and brokerage commissions, face the unwelcome prospect of competition from the nation’s biggest commercial banks.

News last week that two Chinese banks may capitalize on a plan by the China Securities Regulatory Commission to open up the brokerage industry to other financial institutions sent share prices of listed securities firms tumbling, Bloomberg reported.

Bank of Communications Co. and Industrial Bank Co., two of China’s mid-sized lenders, plan to make a foray into the brokerage industry by investing in local securities firms, people familiar with the matter said March 9. An even larger threat may loom should the likes of Industrial & Commercial Bank of China Ltd., the world’s biggest bank by assets, decide to enter the industry.

While the 21 mainland-listed securities firms have themselves ballooned in size as a result of last year’s stock market boom, they are vulnerable to any extra competition because they have largely failed to reduce their reliance on brokerage commissions, margin lending and share sales – business lines closely tied to the booms and busts of Asia’s largest equities market.