PROFITABILITY STRUCTURES OF CHINESE SECURITIES COMPANIES

Overall Profitability Structure

Over the last 20 years or more, Chinese securities companies have been growing in parallel to the fast development of the Chinese capital market. However, the many institutional reforms (such as the introduction of the client margin system, stock index futures, and securities margin trading) have so far failed to bring about a fundamental change in profitability models (as shown in Figure 4.2 and Table 4.1) . The few changes in the revenue structure and profitability structure of securities companies can hardly be considered qualitative. The source of profit is relatively stable and consists mainly of the following six parts:

1. Revenues from brokerage commissions

2. Revenues from the underwriting business

3. Revenues from the asset management business

4. Revenues from proprietary business

5. Interest revenues

6. Revenues from other types of business

Table 4.1 and Figure 4.3 show the revenue structure of listed Chinese securities companies from 2007 to 2011. It is clear that the brokerage commission business is a dominant part of the revenue structure of Chinese securities companies, accounting for half of the total revenue in the first three quarters of 2007, 2010, and 2011 and more than 60 percent of the total income in the first three quarters of 2008 and 2009. Counting in the

Revenue Structure of Publicly Listed Securities Traders in Quarters 1 through 3 of 2011

FIGURE 4.2 Revenue Structure of Publicly Listed Securities Traders in Quarters 1 through 3 of 2011

Source: Wind Information Co.

TABLE 4.1 Revenue Structures of Publicly Listed Securities Traders in 2007 through 2010 and Quarters 1 through 3 of 2011 (CNY in millions)

Year

2007

2008

2009

2010

Quarters 1-3 of 2011

Brokerage commission revenue (CNY)

50,241

30,698

48,144

41,705

21,393

Brokerage commission revenue (%)

49%

60%

61%

46%

48%

Securities underwriting revenue (CNY)

3,666

2,990

5,025

10,637

6,504

Securities underwriting revenue (%)

4%

6%

6%

12%

14%

Asset management revenue (CNY)

2,339

1,592

1,832

2,142

1,883

Asset management revenue (%)

2%

3%

2%

2%

4%

Interest income (CNY)

3,326

5,278

5,476

7,508

7,241

Interest income (%)

3%

10%

7%

8%

16%

Proprietary business revenue (CNY)

36,385

3,467

9,607

19,456

1,845

Proprietary business revenue (%)

36%

7%

12%

22%

4%

Revenue from other types of business (CNY)

6,472

6,999

8,204

8,797

6,055

Revenue from other types of business (%)

6%

14%

10%

10%

13%

Total revenue

102,429

51,024

78,288

90,245

44,921

Source: Wind Information Co.

undertaking business and the asset management business, more than half of the revenues of Chinese securities companies come from provision of conduits.

Since the introduction of the GEM board in late 2009, the number of small and medium public companies has been growing. Listed securities traders have seen the percentage of their underwriting business rising constantly. The percentage reached 15 percent in 2011.

Percentages of the asset management business and the proprietary business change with the fluctuation of the secondary market. The bull market in 2007 drove the percentage of proprietary business up to 35.52. In contrast,

Revenue Structures of Publicly Listed Securities Traders in 2007 through 2010 and Quarters 1 through 3 of 2011

FIGURE 4.3 Revenue Structures of Publicly Listed Securities Traders in 2007 through 2010 and Quarters 1 through 3 of 2011

Source: Wind Information Co.

the percentages were merely 6.79 and 4.11 in the first three quarters of 2008 and 2011, respectively.

With the deployment and expansion of innovative business lines such as stock index futures, securities margin trading, and direct investment, alternative business types have shown a steady upward trend, accounting for 13.48 percent in the first three quarters of 2011. Clearly, the revenue structure of listed Chinese securities companies is quietly changing.

 
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