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China's central bank will inject 2.5 billion yuan (US$308 million) into one of the country's brokerage heavyweights, Guotai Jun'an Securities, according to market sources yesterday.
This is only one part of a bigger scheme to fortify the brokerage sector, and sharpen the competitive edge of mainland securities companies.
Guotai Jun'an is the fifth securities companied to receive a central bank offer of capital support.
Central Huijin Investment Co, the central bank's investment arm that focuses solely on equity investments in the country's major financial institutions, will offer the money and take a 21 percent share of the Shanghai-based broker.
According to Guotai Jun'an's annual report from last year, the company had a net profit of only 51.6 million yuan (US$6.4 million). In the first half of this year, Guotai Jun'an lost about 108 million yuan due to the sluggish stock market.
The whole domestic brokerage sector has been in red over the last few years.
Last year, about 114 securities companies registered a combined loss of more than 15 billion yuan (US$ 1.84 billion).
According to the China Securities Association, 36 inter-bank member brokers had revealed their half-year reports by last month.
Ten of them had a combined profit of 327 million yuan (US$40 million), with 26 brokers suffering a combined loss of 995 million yuan (US$123 million).
China has 64 inter-bank member brokers and these companies play a major role in the mainland capital market.
Market watchdog, the China Securities Regulatory Commission (CSRC), has begun to consolidate the brokerage sector.
Some pilot brokers with comparatively better performances were selected to enjoy policy support for future development.
About half of China's 130-odd brokers are heavily debt-ridden and should be taken over or acquired by others, said Yi Xianrong, a finance professor at the Chinese Academy of Social Sciences.
The mainland stock market is now involved in structural reforms to float non-tradable shares held by the State. New fund raising activities have been suspended until the reform is completed.
This makes it even harder for brokers to make a profit because investment banking is a major part of their business, said Xu Gang, the manager of the research department at CITIC Securities.
The central bank has announced it will offer capital support to five brokers, and insiders said more pilot securities companies will get similar support.
According to market sources, the central bank has set asides about 100 billion yuan (US$12.3 billion) to help strengthen the stock market and the brokerage sector.
About 68 billion will be loaned to brokers to invest in the stock market and about 10 billion will be used to set up a small investors' protection fund. Another 10 billion will be injected into pilot brokers.
(China Daily August 11, 2005)
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