China’s brokerage sector sees mega-mergers but remains competitive and fragmented

China’s 12 trillion yuan (US$1.6 trillion) brokerage sector will continue to remain fragmented and competitive, despite the ongoing consolidation mandated by Beijing to create world-class entities, according to S&P Global Ratings.

“Over the next two years, the landscape will not likely change considerably,” the rating agency said in a report on Friday. “The top players will grab a bit more market share, but the sector will likely remain fragmented and competitive.”

China’s securities sector, with more than 140 firms, faced intense competition in pricing, services and underwriting standards, prompting repeated regulatory warnings, the firm said. “Aggressive underwriting practice could increase securities firms’ risks.”

Recently, some Chinese investment banks offered fees as low as 0.01 per cent in a bid to sponsor and underwrite the Hong Kong share offering of Contemporary Amperex Technology, or CATL, the world’s largest electric vehicle (EV) battery maker, the state-owned newspaper Securities Times reported. CATL is said to be seeking at least US$5 billion from the secondary listing.

The China Securities Regulatory Commission’s supervision bureau in eastern Zhejiang province penalised Zheshang Securities in November for lacking sufficient independence in certain sponsorship work and charging fees significantly below industry standards.

In March 2024, CSRC issued guidelines to restructure the industry to sharpen its competitiveness and to build world-class investment banks by 2035.