CITIC Securities, one of China's heavyweight brokers, has got
the nod from the market watchdog China Securities Regulatory
Commission to expand its business outside the mainland for the
first time by setting up a Hong Kong unit.
The Hong Kong unit will get its registering capital of
HK$10million (US$1.3 million) solely from the parent company,
according to a statement from CITIC published on the Shanghai Stock
Exchange on Friday.
CITIC Securities is among the first batch of domestic securities
firms to explore the overseas market.
Earlier this month, the Shenzhen-based China Merchants
Securities got regulator approval to purchase the Hong Kong-based
Merchants Securities. The two both belong to China Merchants Group
but are independent of each other.
This is the first strategic step for domestic brokers with sound
performance to explore the market outside of the mainland, said Xu
Gang, manager of the research department of CITIC Securities.
"Hong Kong is a big market," he said.
In recent years, more and more domestic enterprises have looked
to Hong Kong to raise capital.
Last year, about HK$265.6 billion (US$ 34 billion) was raised on
the Hong Kong stock market and about HK$57.7 billion (US$ 7.5
billion) was collected by domestic enterprises listed in Hong
Kong.
Unfortunately, almost none of the domestic brokers can share in
the booming market because none of them have Hong Kong units.
At the moment, the business is being taken by foreign investment
banks and China International Capital Corporation, an investment
bank jointly shared by China Construction Bank and Morgan
Stanley.
China's stock market is undergoing fundamental structural
reform, during which, the regulator announced, no firms can raise
capital on the domestic market until the reform is completed.
Mainland enterprises urgently needing money have to go to
overseas markets, said Xu. This makes the Hong Kong market more
attractive, he said.
The sluggish domestic stock market provides domestic brokers
with very limited room to make a profit.
Last year, 114 domestic brokers lost a total of 15 billion yuan
(US$1.85 billion), according to Securities Association of China
statistics.
Market expansion will bring new hope for brokers because the
increased scope will reduce market risks, the manager said.
Brokers can learn a great deal when doing business in markets
outside the mainland, said Yi Xianrong, a Beijing-based
economist.
CITIC Securities is among the top 10 domestic brokers in terms
of securities transaction value and gross assets. Last year it
ranked No 1 in terms of net assets and profit growth of about 650
million yuan (US$80.15 million).
The Chinese government is encouraging its financial institutions
to explore the overseas market.
On Thursday the China Insurance Regulatory Commission issued a
draft circular encouraging domestic insurers to invest in the
foreign insurance sector.
Mainland insurers applying to do business overseas should have a
history of over two years and total assets last year of no less
than 5 billion yuan (US$ 617 million).
Their foreign currency reserve last year should have been at
least US$1.5 million.
(China Daily July 30, 2005)