You can scare away wolves if you become a tiger.”James Chang, head of PwC’s financial services consulting business in China, said the domestic brokerage market was too crowded and in need of a shake-up.“Why do we need so many securities firms? Even in a mature capital market like the United States, there are only a few large players,” he said.By comparison, China’s domestic securities brokerage market included 130 firms as of the end of 2017, with only a small presence for foreign competition.China’s closed capital account and rigid regulations have until now prevented US and European investment banks from accessing onshore Chinese clients.Beijing has approved only 11 joint ventures between domestic and foreign firms, with the foreign ownership stake capped at 49 per cent.These joint ventures are marginal players and are not making much money. According to a survey of 98 brokerage houses by the Securities Association of China, Morgan Stanley’s joint venture ranked No 61 in terms of 2017 revenues, followed by Goldman Sachs’ joint venture at No 72 and UBS’s venture at No 73.Given Beijing’s renewed urgency to respond to US demands to resolve the trade war, the Chinese government has accelerated the process of opening the onshore brokerage services market to foreign competition.Chinese President Xi Jinping told a forum in Hainan in April that the wider opening of securities services, along with insurance and banking, would be a key part of the country’s new round of opening up.The response from foreign investors has proved lukewarm so far. It’s just necessary to achieve synergy in a variety of businesses, and we will mainly target institutional rather than retail clients,” an executive at a non-Chinese brokerage firm, who declined to be identified, told the South China Morning Post.Speaking at the 2018 Global Wealth Management Forum on December 1, UBS China head Eugene Qian expressed concern about the cutthroat competition that keeps dragging down prices and threatening profitability.“The entry of foreign businesses will accelerate domestic consolidation. The China market can hardly accommodate 130 securities firms,” he said.

Source: The Star December 30, 2018 07:52 UTC