China is building a robust stock exchange that will take on the United State stock market power level
- Posted on September 06, 2024
- Stock Market
- By admin
The merger, announced through a share swap agreement, is subject to approval by the companies' boards, shareholders, and regulatory authorities. The consolidation comes after President Xi Jinping called on financial regulators to cultivate a few top-tier investment banks capable of competing globally by 2035. China currently has over 140 securities firms, and the nation’s securities watchdog has supported efforts to consolidate the sector, aiming to build two to three globally competitive investment banks in the coming decade.
This merger is also a response to the sector's declining profitability. The industry has struggled in recent years with weak economic growth, sluggish capital markets, and reduced deal-making activity. Haitong Securities, which has seen its profits drop by 75% in the first half of 2024, has been particularly hard-hit. Analysts suggest that the merger could help resolve some of Haitong’s business challenges, improve the quality of its underlying assets, and address the company’s valuation issues. However, job cuts are anticipated as the industry faces fewer companies going public, further straining operations.
The merged entity will include over 28,000 employees from both firms, and the deal also highlights China’s ambition to build "aircraft carrier-sized" financial firms that can compete with international giants like Goldman Sachs and Morgan Stanley. The deal also reflects China’s broader "common prosperity" campaign, which has prompted financial firms to streamline operations and cut costs through layoffs and salary reductions.
While the trading of shares for both firms has been suspended, the merger represents a major development in China’s years-long effort to build a financial entity capable of challenging the dominance of global investment banks. This consolidation may encourage further mergers within China’s financial sector, with other firms like Guosen Securities and Vanho Securities already announcing plans for similar deals.
The merger aligns with China’s broader ambition to gradually open up its financial markets to foreign competition, having allowed full foreign ownership of securities firms starting in 2020. The Shanghai State-owned Assets Supervision and Management Commission holds significant stakes in both Guotai Junan and Haitong, and the success of this merger will likely serve as a model for future consolidations as China reshapes its financial landscape to compete on the global stage.
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