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China Securities Industry Report (Merger & Reorganization), 2005-2006

Published: August/2006

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Report Code: FY058 Enterprisewide  USD $ 2,700
 

By Dec. 2005, China has all together 1,381 listed companies in Shanghai and Shenzhen, with a total value of 762.95 billion capital stocks. The total number of investors is 73.36 million and a total amount of RMB3, 166.3 billion deals has been done.

 

Development Stages of China’s Securities Industry

 stage  period  Characteristics

Stage I Free trade

 1984-1989  Companies issued their own stocks and achieved stock deals through different financing companies, distributing companies and financing centers that spread widely in China.
Stage II Start concentrated transaction  1990-1992  Based on the Circular of Strictly Controlling Stock Issuance and Transference issued by The People’s Bank of China in Dec. 1990, two securities exchange centers were established respectively in Shanghai and Shenzhen, and the widely scattered financing companies, distributing companies and financing centers were all canceled.
 Stage III  1992-1997  The central government of China started to intervene in the securities market by establishing Securities Commission of the State Council and China’s Securities Regulatory Commission in Oct. 1992. Then in Dec. 1992, the State Council of China issued PROVISIONAL REGULATIONS ON THE ADMINISTRATION OF SHARE ISSUANCE AND TRADING, to forbid the currency of state-own stocks and corporation stocks. Since Dec 16, 1996, the securities exchange centers have officially limited the fluctuation of stocks within 10%.
 Stage IV  1998-2000  In 1998, China’s securities industry was boosting with total market value accounting for 24.46% of China’s GDP that year and played a more and more important role in China’s economic development. The official overpass of the Securities Law in Dec 1998 marked the formation of the legal system for the securities market.
 Stage V  since 2000  Since 2000, China has been implementing the Security Sponsor System and opened a special area for medium and small-sized enterprises. China’s Securities Regulatory Commission began to restructure securities companies and set the market-oriented development model to select the superior and eliminate the inferior.

Source: ResearchinChina

 

China’s securities market is undergoing a profound change. The formerly bundled stock market of China is open towards the world and gradually replaces its financing function and speculating function with investing and financing function. Yet the structure of stock ownership in China is still unreasonable, for example 63% of the market stocks is non-circulating and only 27% is circulating. Now China’s reforming of the stock market is bound to impact the securities market somehow and meanwhile bring some opportunities for investors.

 

With only a history of ten years more, China’s securities industry has many disadvantages compared with that of the developed countries. Firstly, similar operation structure, monotonous operation pattern and want of innovativeness enormously decrease the integral competitiveness of China’s securities industry. Secondly, the structure of securities companies is rather incomplete and their interior risk control system suffers serious unreasonableness. Thirdly, decentralization, small scale, low degree of differentiation, and weak risk-proof ability make China’s securities industry a failure in front of foreign-owned securities companies. Lastly, China’s securities industry is rather disorder in competition. In addition, it lacks complete and effective market supervision system and wants legal communication and coordination system.

 

China is aware of the above weaknesses and is continually adjusting to enhance and enlarge the securities industry. Under this condition, the advantage of merger and restructuring in the industry is self-evident. The status quo of China’s securities market determines that its future development model is bound to be merger and restructuring.

 

As China’s financial market is opened step by step, the merger and restructuring in China’s future securities industry will show the following tendencies: Firstly, mixed operation will become the mainstream. Secondly, merger and restructuring in the industry will become even fiercer as China’s securities companies aim to strengthen and enlarge themselves. Thirdly, foreign merger promotes the restructuring of China’s secretaries market. Finally, the securities market is concentrating gradually.

 



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