Theoretical and Practical Judgment Based on Functions of Securities Companies

From a review of the development of Chinese securities companies, it is clear that China's quick economic and social developments provided huge opportunities and expansive space for financial system reform and growth of capital markets and securities businesses. The growth of the Chinese capital market and securities businesses has also actively contributed to the growth of financial economics in China. On the other hand, securities companies have been given significant responsibilities, including that of a positive role model, as China drives economic reforms and tackles the myriad issues confronting reform and development of the Chinese financial system, capital market, and securities firms.

Growth Traits of Securities Companies

Before we can pass judgment on the Chinese securities firms, we must identify their functions and roles in the capital market and financial system. We can then objectively analyze the pros and cons of securities companies in the economic and social development of China from the perspective of internal demands of economic growth, development of the financial system, and efficiency of market operations. This is also done in conjunction with elements such as structure of market competition, governance structure, business system, and profitability abilities of securities firms. Basically, an accurate view of the growth features of Chinese securities firms is required, in respect of the following four factors:

1. Phasing characteristic of the development of securities companies

2. Passiveness of development

3. Subordinate position in the financial system

4. High growth prospects in the future

Phasing Characteristic of the Development of Securities Companies Because securities companies and the capital market were born and developed out of their respective historic missions, their development shared a consistent and phasing nature with the development of the economy and finance.

Passiveness of Development The development of the Chinese securities companies has been subject to a number of impacts, such as the low marketization level of the Chinese financial system, immaturity of the securities market, restrictions of the separated financial regulation, and stringent oversight over the securities industry, as well as a weak vitality for innovation caused by the ownership structure of securities companies.

Subordinate Position of the Financial System Although a marketized modern financial system has been established in the reforms of the Chinese financial system as a goal, the banking sector still plays a dominant role in the Chinese financial system after 20 years, while the influences of the securities sector are still very weak in the overall financial system. Even today, the total assets (CNY 1.2 trillion) of the entire securities industry are merely as high as the assets of a common commercial bank, and profitability is only around CNY 100 billion. These figures are starkly disproportionate to the critical role the securities industry plays.

High Growth Prospects in the Future The continuous, healthy development of the Chinese economy requires leapfrog development of the Chinese finance and capital market, which represents a wider space for the development of the Chinese capital market and securities companies. This will prompt securities firms to step up their innovation and development efforts to meet the shifts of the financial demand structure and demands of the reforms in the financial system, in order play the role expected from securities firms. So, despite the preliminary stage in which Chinese securities companies presently find themselves, there is no doubt that the future holds significant prospects.

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