Challenges from WTO Membership
Advances in Chinese Economic Studies series
Edited by Kam C. Chan, Hung-Gay Fung and Qingfeng ‘Wilson’ Liu
Chapter 6: Investment Banking in China: Past, Present and Future
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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