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Pan-Banking Characteristics

Since the very beginning, all Chinese financial institutions have been showing pan-banking (or quasi-banking) characteristics. Such characteristics are even more prominent when it comes to securities companies. A considerable part of the revenues of earlier securities companies came from interest income, generated from the interest spread arising when securities companies deposit customer margins in a bank. Interest income accounted for over 30 percent of the business revenues of earlier securities companies.

According to 2011 statistics, interest income in the overall securities industry accounted for 15 percent of total revenue, becoming the second-largest revenue contributor. In 2010, securities companies (on a pilot basis) started engaging in the securities margin trading business, which brought about certain changes in the interest income structure of securities companies. However, interest income due from banks and other financial institutions still makes up over 95 percent of the total interest income. In 2011, the sluggish market and persistently low commission rates further accentuated the pan-banking characteristics of securities companies. Interest income accounted for 16 percent of the total revenue in the first three quarters of 2011. It can be seen from mature markets overseas that interest income is ubiquitous in securities companies. However, it mainly exists in the form of securities-margin-trading-based interest income, which accounts for over 10 percent, or even 30 percent of the total revenue. Therefore, to avoid the same fate of the trust industry, Chinese securities companies have to rid themselves of the pan-banking characteristics.

Uniformity

Chinese securities companies are characterized by a dull uniformity in their profitability models. Specifically, they are uniform in the following two aspects:

1. Identical business structures: The profitability models of major securities companies are extremely similar. They basically focus on four traditional business lines: brokerage commission business, securities underwriting business, proprietary business, and asset management business. The brokerage business mostly involves acting sale of securities. The investment banking business mainly focuses on stock financing. The proprietary business has a relatively small percentage. The asset management business is growing very slowly. Some securities companies have gained qualifications for innovative business such as securities margin trading, stock index future trading introduction, and direct investment. However, innovative business accounts for no more than 10 percent of total revenue, at most.

2. Identical forms of services in each business line: The business of Chinese securities companies is highly homogenous, essentially without any difference and distinction in terms of service forms, service means, and service contents. Identical profitability models and homogenous business have made it impossible for any effective means of competition among securities companies to exist, with the only exception being price. The uniformity of profitability models impedes the establishment of the core competitive strength of a securities company and negatively affects the healthy development of the securities industry as a whole.

 
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