China’s Capital Markets

China’s Capital Markets

Challenges from WTO Membership

Advances in Chinese Economic Studies series

Edited by Kam C. Chan, Hung-Gay Fung and Qingfeng ‘Wilson’ Liu

China’s economy has been growing rapidly since the late 1970s and is expected to maintain this momentum in the foreseeable future. Coupled with the biggest population in the world, there is tremendous growth potential for China’s capital markets and financial services industry, both vital to the continued development of the economy. The contributors present research on all facets of China’s markets including: stock and bond markets; futures and over-the-counter markets; regulatory issues; and the development and roles of financial institutions such as brokerage firms, banks and insurance companies. Also addressed are the recent performance of equity markets, the emergence of small and medium enterprises, and the state banks’ bids to be listed in overseas stock exchanges. Taken together, the book sheds a welcome light on China’s overall economic growth.

Chapter 6: Investment Banking in China: Past, Present and Future

Alan V.S. Douglas and Alan Guoming Huang

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation

Extract

Alan V. S. Douglas and Alan Guoming Huang INTRODUCTION This chapter briefly describes the history and current status of China’s investment banking industry. We focus on three narrowly defined categories of investment banking activities: underwriting, brokerage and financial advisory services. These three lines of business closely resemble the business scope of investment banks in China to date. Underwriting services include public offerings and private placements of equity and debt securities; brokerage services include commission-based security transactions, and financial advisory services include advice on mergers and acquisitions (M&A), divestitures, spin-offs and other corporate finance activities. The investment banking industry in China is fairly young. The first investment bank was founded in 1987. Investment banks in China predominantly call themselves ‘securities companies’, for example, ‘Guangfa Securities Co., Ltd’. Following the growth of the Chinese economy and its capital markets, the industry has grown exponentially over the years, both in terms of firm numbers and firm assets. By the end of 2004, there were a total of 128 securities firms, with total and net assets of RMB458 billion and 100 billion, respectively.1 However, the industry remains in its early stages of development, even though the growth has been phenomenal. The size of the industry and individual firms is relatively small by the standards of developed financial markets. The industry’s growth to date can be broken into three distinct periods, based on legislative milestones and the speed of growth. These three periods are the arising period (1987–1990), the...

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