Chinese securities companies are expanding beyond the traditional brokerage business into wealth management and an overseas footprint, with digitalisation one of the key competitive differentiators, finds KPMG’s latest survey.
KPMG China’s 11th annual survey of 129 securities companies in mainland China highlights that revenue from investment banking increased 30 percent year on year to RMB 68.1 billion – the result of an accelerated IPO and bond approval process. Investment banking accounted for one-fifth of the industry’s total income in 2016, compared to nine percent in 2015. Meanwhile, the asset management sector gained prominence in 2016 as it generated nine percent of the industry’s total income, nearly doubling from its five percent market share in 2015.
“Securities companies are actively exploring opportunities to diversify their businesses and make strategic transitions away from the traditional brokerage segment,” says Bonn Liu, Partner and Head of Securities and Investment Management, ASPAC, and Head of Financial Services, KPMG Hong Kong. “They are also improving their active management capabilities in order to expand the product structure of their asset management business.”
The report notes that 2016 was the third best-performing year for China’s securities industry. Total operating income hit RMB 328.6 billion with total profits of RMB 123.2 billion. However, brokerage business’ contribution to overall income declined to 34 percent in 2016, from 48 percent in the previous year, as a result of business diversification and competition.
The report also highlights the industry’s continued efforts towards internationalisation. A total of 14 Chinese securities companies, for example, listed in Hong Kong as at the end of June 2017.
“Listing overseas provides them not only access to international capital, but improves their global recognition by exposing their brands and services to a new client base. This ties in well with the overseas expansion plans of Chinese enterprises, which are increasingly looking for the services of agencies that are familiar with local laws and regulations overseas,” says Tony Cheung, partner in charge of Financial Services Advisory, KPMG China.
Internationalisation is also taking shape in the domestic China market as more Sino-foreign joint-venture securities companies are expected to be established. As at the end of August 2017, there were 18 applications for establishing securities companies in China, of which Sino-foreign joint venture firms accounted for nearly half.
“The internationalisation of China’s capital market has not gone unnoticed. MSCI’s decision to include A-shares into its benchmark MSCI Emerging Markets Index was a testament to the progress of the Chinese capital market’s internationalisation,” adds Cheung.
An increased focus on digitalisation is another key development. Abby Wang, Head of Securities and Investment Management (China), KPMG China, concludes: “The need to innovate and reinvent their business model is an issue many securities companies are facing at the moment. Differentiating from other players will be key to remain competitive in the industry.”
“In the age of digitalisation, we believe the future of the securities industries belong to companies that are able to successfully integrate fintech with traditional financial services. Digitalisation has the potential to empower the entire business chain and those looking to gain a headstart now will stand to benefit the most in the future.”
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KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and regions, and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.