mainland china securities survey 2015 ... - kpmg us llp · pdf...

FINANCIAL SERVICES
Mainland ChinaSecurities Survey 2015
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Contents
2015 K
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uazhen LLP, a Peoples Republic of C
hina partnership and a mem
ber firm of the K
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ork of independent mem
ber firms affiliated w
ith KP
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International Cooperative (K
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International), a Swiss entity. A
ll rights reserved.

01 Introduction 302 Market overview 903 Market development: opportunities and challenges 2504 Development driven by both traditional and new businesses 3505 Recent policy and regulatory developments 4706 Conclusion 6107 Appendices 65
Appendix 1 Financial highlights 1 66
Appendix 2 Sector rankings 2 104
Appendix 3 Overview of Sino-foreign joint venture securities players 3 107
Appendix 4 2015 grading of securities companies by CSRC 4 2015 108
Appendix 5 Qualified foreign institutional investors 5 110
Appendix 6 RMB qualified foreign institutional investors 6 118
Appendix 7 Qualified domestic institutional investors 7 122
Appendix 8 Mainland futures companies 8 126
Appendix 9 Mainland fund management companies 9 130
Appendix 10 Subsidiaries of mainland fund management companies 10 134
Appendix 11 Securities companies which have set up Hong Kong subsidiaries 11
138
08 Contact us 141
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01Introduction
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2014 and the first half of 2015 was an extraordinary period for Chinas securities sector. Whilst the first six months of 2014 was relatively unremarkable with lacklustre market performance, the A share index took off in the second half of the year, resulting in record transaction volumes and making 2014 a bumper year for Chinese securities companies.
Statistics from the Securities Association of China (SAC) show that the total income and net profits of the sector for the year ended 31 December 2014 reached RMB 255.4 billion (a year-on-year rise of 64 percent) and RMB 94.9 billion (a year-on-year increase of 121 percent) respectively, making 2014 the ninth consecutive profit-making year since the overall loss experienced by the industry in 2006. The statistics also show that 115 out of the total 119 Chinese securities companies were profitable in 2014. The total assets and net assets of securities companies increased by 97 percent and 22 percent respectively compared to the previous year, providing a further indication of just how much the securities sector grew in 2014. According to data from exchanges, the annual turnover of the domestic A-share market reached RMB 74.39 trillion in 2014, representing a sharp rise of 59 percent compared to 2013. Apart from the impact which this significant growth in trading volumes in 2014 had on securities firms revenues, the industry also benefited from a dramatic growth of the credit business driven by rising demand given the favourable market conditions. A number of policy initiatives also contributed to the performance of the sector, including the re-launch of the A-share initial public offering (IPO) and the official opening of the Shanghai-Hong Kong Stock Connect pilot program.
Analysis of total income for the sector has shown growth across the different types of business undertaken by Chinese securities firms. The main source of revenue for securities firms in China in 2014 continued to be income from brokerage business which contributed 42 percent of the total income of the sector in 2014. Margin financing and securities lending business continued to grow in 2014, with a net income reaching RMB 27.6 billion, similar in proportion to that of 2013. The share of income from trading business rose sharply as a result of the strong market performance. Revenue from investment banking business accounted for 12 percent of the total income, 1 percentage point higher than in 2013 due to the re-launch of IPOs in 2014. Asset management business as a proportion of the total income was 5 percent, a small increase from the previous year.
The growth in the securities sector in 2014 and 2015 has spurred renewed focus on fund-raising and continued business innovation. With margin financing and securities lending business reaching trillions of RMB, capital became a major area of focus for securities companies. There was an increasing number of broker IPOs and asset securitization began to emerge as a hot topic. Areas of innovation included firms internet securities trading platforms. A number of regulatory changes may also bring significant impact, including reforms of stock issuance registration procedures and the deregulation by the CSRC.
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20142015201420142014
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2014 201442%2014276.08201320142014IPO2013112%5%
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The significant increase in market transaction volume in 2014 and 2015, and the increased volatility of the equity market in June and July 2015 stress-tested the industry and provided a timely lesson to all market participants in the importance of effective risk management.
This report is the ninth annual Mainland China Securities Survey published by KPMG China. It has been compiled based on information obtained from the 2014 financial statements of 119 domestic securities companies, which can be accessed via the official website of SAC (www.sac.net.cn).
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20142015201567
(www.sac.net.cn) 1192014
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Market overview
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In 2014, the securities sector realized a net profit after tax of RMB 94.9 billion, a year-on-year rise of 121 percent (see Chart 1) on an unconsolidated company level basis (all figures quoted in this report are unconsolidated company level figures). This represents the second highest profit since 2001. The surge in profits was mainly driven by the substantial growth of profits in brokerage and trading business in the second half of 2014 due to the bullish A-share market, booming margin financing and securities lending, and the expansion of investment banking business due to the re-launch of IPOs. It is worth noting that the launch of the Shanghai-Hong Kong Stock Connect program, as well as the further upgrade of small-scale outlets and on-line accounts opening in 2014, resulted in more intense competition among brokerage firms and has hence brought down the average commission rate (see Chart 2). With further developments in internet finance and implementation of relevant policies, the average brokerage commission rate has room to decline further.
Chart 1: Total net profit of securities firms in Mainland China (RMB billion)
Chart 2: Movement of market turnover and average brokerage commission rates
Source: Securities firms financial statements and KPMG analysis
Source: China Securities Regulatory Commission (CSRC), SAC, KPMG analysis
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20149492013121%12001142014AIPO20142
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The share of brokerage fees as a proportion of total operating income declined by 7 percentage point in 2014 compared to 2013 due to the decrease in commission rates, while the proportion of income from other major businesses in total operating income increased (see Chart 3). Brokerage fees still served as a major source of income for domestic securities firms. In contrast, leading international investment banks relied

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