Financial Globalization Gets Chinese Securities Firms Involved

Economic and financial globalization involves the Chinese financial market, let alone securities firms. For Chinese securities firms, fast growth in financial globalization requires action as well as international vision. Companies that limit themselves in established business activities and cling to old business strategies will be washed away from the market. Specifically, a globally leading securities firm must be able to analyze the capital markets from a global perspective, conduct global asset management, and offer investment banking services around the world.

A Global Perspective Of Capital Markets

The domestic market will remain the main arena in which Chinese securities firms earn income for a very long time. International economic and political change will have an increasingly significant impact on the Chinese capital market. Chinese securities firms need to analyze the domestic capital market from a global perspective and act prudently and conscientiously in asset allocation and customer services in order to grow in the intense market competition. For example, securities firms must adjust asset allocation or offer a full range of customer services in an efficient manner in any case that may affect the Chinese economy and capital market. Such cases may include the global financial crisis, European sovereign debt crisis, government bailouts, and the unrest in North Africa and the Middle East. A securities firm with customers around the world also needs to have a deep understanding of the global economic situation and changes, and must maintain timely and effective communication with customers. In particular, what international investors want most from Chinese securities firms is their understanding of the impact of the Chinese economic change and policy adjustment on the global economy. For example, in 2006, Morgan Stanley's Global Wealth Management Group had over 8,000 business representatives in more than 500 regions around the world. It provided a full range of financial services to customers in places including the United States, Europe, the Middle East, Asia, and Latin America, and managed major client assets of more than USD 686 billion. Therefore, for Chinese securities firms, a global perspective of global capital markets is a prerequisite for any further development.

Global Asset Management As Chinese investors and securities firms move toward the international market and international investors move toward the Chinese capital market, business opportunities arise in global asset management. This could become one of the pillar business activities of securities firms. For example, in 2006, Morgan Stanley managed assets worth USD 478 billion and had customers in the United States, Europe, Japan, India, China, Brazil, and other major economies around the world. In China, there is a need for diversified international investment along with increasing foreign-exchange reserves due to trade surpluses and capital inflows over years. The RMB could flow around the world on a more frequent basis with internationalization, after being recognized as a reserve currency. Chinese securities firms could become major players in global investment on behalf of Chinese investors. A rapid economic growth, a growing financial market, and the improvement of liquidity in China could also attract more international investors. Chinese securities firms are already seen as top choices in asset management companies. The QDII pilot program has, for the first time, offered Chinese securities firms a chance to practice global asset allocation. However, there is still a long way ahead, considering the scale of the QDII program and the lack of skilled professionals and experience.

Global Investment Banking Services After the launch of the international board in the Chinese stock market, a number of high-performance foreign companies will be lining up for IPOs in the A-share market. This could provide an opportunity for Chinese securities firms to start their international investment banking services. After that, Chinese securities firms could go further by offering companies around the world securities underwriting and financial advisory services in the international market. Chinese companies with an international business strategy currently have a huge demand for financial advisory services in their international acquisitions. However, due to the gap in business strength and experience, few Chinese securities firms have received offers. Instead, renowned international investment banks have been approached and hired as financial advisers in such acquisitions. For example, Goldman Sachs managed Lenovo's USD 1.75 billion acquisition of IBM's global PC business. Rothschild managed Geely's USD 1.8 billion acquisition of Volvo. J.P. Morgan Chase handled Sinosteel's USD 1.3 billion acquisition of a 50.97 percent stake in Midwest and in China Merchants Bank's USD 4.66 billion acquisition of the Wing Lung Bank. Lehman Brothers handled Chinalco and Alcoa's USD 14.1 billion acquisition of a 12 percent stake in Rio Tinto (UK). Morgan Stanley managed CIC's USD 1.581 billion acquisition of a 15 percent stake in AES Corporation. In 2010, Chinese companies completed 188 overseas mergers and acquisitions with a total contract amount of USD 55.4 billion, 37 percent more than the 2009 amount. These overseas M&As will continue to increase at a rapid speed. To become qualified financial advisers in such M&As and promote business growth, Chinese securities firms have to build on their own rapid growth and become familiar with related legislations as soon as possible.

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