The firm wants to boost its share of the mainland market by taking a 20 per cent stake in GF Securities Citic Securities plans to buy a stake in rival GF Securities, China's seventh-largest brokerage, to boost its share of the mainland market, where profits have been thinning on slumping stock prices. Analysts say that unlike previous mergers, the proposed deal appears driven by market fundamentals rather than orchestration by the state, although it also dovetails neatly with official policy calling for consolidation in the loss-making, scandal-scarred sector. Citic executive Peng Lixin said the firm's board had approved the plan and authorised top managers to negotiate with GF. While Mr Peng declined to provide details, rival Shenyin & Wanguo Securities, in a research note, said Citic - one of two listed brokerages -would pay about 520 million yuan for a 20 per cent stake. 'It's a tie-up between two strong brokerages,' said Zhang Qi, an analyst at Shanghai-based Haitong Securities. 'The tie-up will help them acquire larger market share.' The proposed acquisition by Citic Securities, an arm of China International Trust & Investment Corp - the mainland's biggest investment company, follows its purchase of a 67 per cent stake in Wantong Securities in July last year. The move comes as Citic, the mainland's No2 brokerage by net assets, suffered a 63.67 per cent tumble in its first-half net profit to 56.52 million yuan as A-share markets continued to swoon. Profits during the period at Guangdong-based GF, by contrast, rebounded to 59.49 million yuan after it posted a full-year loss of 60 million yuan last year. GF, with assets of 12.01 billion yuan, acquired Northern Securities and Huafu Securities in 2001 and last year, respectively. GF successfully underwrote Citic's 1.8 billion yuan initial public offering in 2002. The tie-up could catapult Citic to the top of the list of mainland brokerages, surpassing Guotai Junan Securities, the product of a government-ordered merger between Guotai Securities and Junan Securities in 1999. The expansion would help Citic and GF fend off increasing competition from domestic and foreign rivals as the sector opens fully in 2006 under World Trade Organisation rules. Foreign players such as BNP Paribas, JF Fleming and Merrill Lynch have all set up aggressively competitive operations in China, Asia's No2 market after Japan. China's stock markets, however, have been among the worst-performing in the region since 2001. Analysts say prospects for improvement hinge largely on whether the government can purge the markets of substandard listings and remove the lingering overhang of billions of state-held 'non-tradeable' shares in listed companies.