CASE STUDIES

For the future development of small and medium securities traders, the right way forward is regionalization and market segmentation. For large securities traders, the right choice is to become more internationalized and comprehensive in business scope. The following two cases studies were selected from the 18 listed securities traders in China in 2011, CITIC Securities and Soochow Securities. Large securities traders such as CITIC are likely to take the lead in the competition to become more internationalized and comprehensive.

Small and medium securities traders, represented by Soochow Securities, may stand out in the process of regionalization and specialization.

CITIC Securities—Equal Importance to Tradition and Innovation, Firm Foothold in China, and Aggressive Exploration Overseas

As an industrial leader, CITIC Securities has traditional advantages in such business lines as brokerage and investment banking, in addition to the frequent breakthroughs it has been making in direct investment and securities margin trading. The focus of CITIC's development has been on both tradition and innovation, and maintaining a strong presence in China, while exploring growth opportunities overseas.

Development of Both Wholly Owned and Equity-Controlled Business; Taking Root in Beijing, Guangdong, Shanghai, Zhejiang, and Shandong; Brokerage Accounting for Half of the Revenues

Fifty-Five Proprietary Business Units Taking Root in Beijing, Shanghai, Guangdong, and Jiangsu Figures 4.17 through 4.19 show the distribution of CITIC's business channels.

The brokerage business is the main source of revenues for CITIC Securities, as it is for all securities traders. As a large securities company with nationwide presence, CITIC Securities owns 55 operations distributed over 13 provinces.

In addition to the 55 operations of its own, CITIC Securities also indirectly owns 91 operations distributed closely in Shandong and Zhejiang through securities companies such as CITIC JINTONG and CITIC WT.

Equity Control of JINTONG and WT, Prominent Geographical Advantages in Zhejiang and Shandong With 46 of its 52 operations located in Zhejiang, CITIC JINTONG has absolute dominance in the region, providing strong support for the brokerage business of CITIC in the Zhejiang region.

With 37 of its 39 operations located in Shandong, CITIC WT has absolute dominance in the region, providing a strong support for the brokerage business of CITIC in the Shandong region.

The Brokerage Business Remains to Account for Nearly Half of the Revenues in 146 Operations Nationwide With 146 operations nationwide, including those of its own and those owned through CITIC JINTONG and CITIC WT, CITIC Securities is able to maintain the brokerage business revenue at about 30 to 40 percent of the total average revenues (see Figure 4.20).

FIGURE 4.17 Distribution Pattern of CITIC Securities' Proprietary Business

Source: Wind Information Co., public information of the company, iFinD Database.

Investment Banking Business

Even with the resources of nearly 150 operations distributed across the country, CITIC Securities is still making a great effort to develop the investment banking business, in order to expand revenue sources and curb income fluctuations. Figure 4.21 shows the revenue generated by the Investment Banking division within CITIC Securities.

Thanks to the great strength of its investment banking team, the securities underwriting business made up an average of more than 10 percent of CITIC Securities' total revenues over the past few years.

Although the investment bank of CITIC Securities didn't issue the most IPOs, due to the fact that most of the IPOs are large-cap or mega-cap, CITIC's revenue from its investment banking business far exceeds any other company with the same number of IPO issuances (See Table 4.14).

Investment Business

The investment business is another bright spot in CITIC Securities, and an important factor that keeps the percentage of the brokerage business in the total revenue below 50 percent. Statistics show that over the years the profit rate of CITIC's investment business averaged about 28 percent. In particular, against the backdrop of a securities market slump in

FIGURE 4.18 Distribution Pattern of CITIC JINTONG's Securities Operation Outlets

Source: Wind Information Co., public information of the company, iFinD Database.

TABLE 4.14 Top-Five Securities Traders in Terms of the Number of Investment Banking Projects Since 2006

Source: Wind Information Co., public information of the company, iFinD Database.

FIGURE 4.19 Distribution Pattern of CITIC WT's Securities Operation Outlets

Source: Wind Information Co., public information of the company, iFinD Database.

recent years, CITIC has been able to maintain a high level of income by selling its equities in CITIC Construction and China AMC. Figure 4.22 shows the revenue generated by the Brokerage division within CITIC Securities.

Firm Foothold in China, Aggressive Exploration Overseas

With the fast development of the brokerage, investment banking, and investment business, CITIC Securities is wasting no time and exploring internationalized business while strengthening its foothold in China.

Investment in Overseas Securities Traders On June 9, 2011, the board of the company considered and passed a proposal about the acquisition of 19.9 percent equity interest in CLSA and Cheuvreux by wholly owned subsidiary CITIC Securities International. (See Figure 4.23.) It allows its subsidiary in CLSA and Cheuvreux for USD 374 million. The acquisition was still in progress in late 2011.

Overseas Financing On April 13, 2011, the first provisional shareholders meeting of the company considered and passed proposals including the

FIGURE 4.20 Percentage of Securities Brokerage Business in the Total Revenue in CITIC Securities

Source: Wind Information Co., public information of the company, iFinD Database.

FIGURE 4.21 Percentage of Investment Banking Business in the Total Revenue in CITIC Securities

Source: Wind Information Co., public information of the company, iFinD Database.

FIGURE 4.22 Percentage of Investment Business in the Total Revenue in CITIC Securities

Source: Wind Information Co., public information of the company, iFinD Database.

FIGURE 4.23 Internationalization of CITIC Securities

Source: iFinD Database.

issuance of H shares and listing in the main board of the Hong Kong Stock Exchange. Related work was in steady progress later in 2011.

Cultivation of Cross-Border Business With Hong Kong as the starting point, CITIC is actively gaining experience for development overseas and gradually tapping into overseas markets by establishing CITIC Securities Brokerage (Hong Kong) Ltd., CITIC Securities Futures (Hong Kong) Ltd., CITIC Securities Finance (Hong Kong) Ltd., and CITIC Securities International Company Ltd.