Digital transformation, opening up of capital markets and consolidation are the key drivers
31 August 2020, Hong Kong – Mainland China's securities industry is expected to progress at a faster pace in response to calls for strategic transformation, differentiated development and industry consolidation, with the support of capital market reforms and top-level policies, according to a KPMG report.
The 14th annual Mainland China Securities Survey analyses the industry based on the 2019 financial statements of 132 securities companies in Mainland China. The report shows the industry reported operating income of RMB 360 billion and net profit of RMB 119.5 billion in 2019, representing year-on-year increases of 37% and 92% respectively. Net income from various lines of business has been growing, except in the asset management segment, which stayed flat. Income from the proprietary trading segment remained the biggest source of income, accounting for 39% of the industry's total operating income. This is followed by income from the brokerage segment which increased by 25% year-on-year to RMB 84.3 billion. Net income from the investment banking segment increased by 31% to RMB 48.1 billion.
With the People’s Bank of China now requiring financial institutions in Mainland China to strengthen their strategic planning for fintech development and to enhance their financial services and risk management capabilities, the securities industry is utilising fintech in order to develop innovative business. This includes smart customer service, precision marketing and smart investment consulting, with the overall goal of improving customer service, according to the report.
Bonn Liu, Partner, Head of Asset Management, ASPAC, KPMG China, says: "In terms of the development of fintech and digital transformation, the introduction of a series of market-oriented reforms and the removal of ownership restrictions for foreign investors present the securities industry with unprecedented opportunities as well as challenges. Securities companies need to explore differentiated growth strategies and strengthen risk management in order to be successful in the long term."
As the foreign ownership cap has been lifted, 2020 marks the beginning of a new era to fully open up China’s financial services industry. Tony Cheung, Partner, Head of Financial Services Advisory, KPMG China, says: "Both domestic and foreign owned securities companies are expected to explore market needs and new business models and create value as they compete with each other. Increased interaction between the two sides will prompt regulators and the industry to improve regulatory and risk management systems. Ultimately, these developments will pave the way for the creation of an international capital market that is open, fair and sound."
The report notes that first-tier securities companies have maintained their leading edge due to their inherent strengths and risk management capabilities. Leveraging on the recent relaxation of ownership restrictions and their global strength, securities companies controlled by foreign shareholders have also been accelerating their expansion into China. In addition, the conventional path of homogeneous development is increasingly difficult due to internal and external factors. Differentiation and consolidation will therefore be key trends going forward for the securities industry.
Wilson Huang, Partner, Financial Services, KPMG China, says: "The launch of the STAR Market, the registration-based IPO mechanism, the acceleration of opening-up efforts, and the increasingly important role of technology in the industry all present opportunities for securities companies to reshape the competitive landscape and differentiate themselves. Compliance and risk management are the foundation for securities companies that are pursuing differentiation and consolidation."
In 2020, the 13th Five-Year Plan will conclude and the 14th Five-Year Plan will be strategised. The report notes that China's securities industry is undergoing profound changes, driven by trends such as accelerating industry consolidation and model differentiation, existing and incremental reforms going hand in hand, and digital transformation leading to high-quality development.
Abby Wang, Partner, Head of China Asset Management, KPMG China, concludes: “Amid a rapidly changing landscape, the capital market remains a key driver of domestic and international economic development under the ‘dual circulation’ development pattern. Building a buoyant and robust capital market requires a high-quality securities industry. Strategic positioning according to existing resources will be crucial, as well as the continued diversified development of mega-sized securities companies or boutique firms. At the same time, securities companies need to enhance their core competencies, fully utilise fintech to accelerate digital transformation, optimise organisational structures and talent systems, and promote the synergy of financial capital and the real economy.”
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