China’s US$1.6 trillion brokerage industry braces for more pain as authorities frown at high commissions, generous compensation
- Reports suggest some CICC bankers have been dealt a 40 per cent cut in bonus amid Beijing’s call to ditch financial elitism
- Analysts expect further pain for brokerages, as a State Council guideline urged financial institutions like brokers and funds to further lower service fees
Chinese brokerage firms are bracing for more pain as a tepid economic recovery and a brutal stock market sell-off could inflict further damage to the financials of the 11 trillion yuan (US$1.56 trillion) sector. These concerns swirl even as a wave of job cuts and shutdowns has whipsawed the sector in the year to date.
The industry whose top players include China International Capital Corp (CICC) and Citic Securities, is being closely monitored amid media reports that Zhongtai Securities, a medium-size brokerage firm, has shuttered its proprietary trading department following massive losses. The Hong Kong subsidiary of Orient Securities has also reduced staff because of the sluggish business performance, a source familiar with the matter told The Post.
The cost cutting campaign has not spared even the employees who have retained their jobs. Bloomberg reported CICC told some senior bankers this week that their bonus compensation for 2022 will be cut by more than 40 per cent.
The decline in the sector’s financial performance is a harbinger of further shocks in the form of more lay-offs, downsizing and additional cost-cutting exercises. The outcome is inevitable after hiring sprees by brokerages such as CICC and Citic Securities that increased staff strength by more than 8 per cent last year coincided with a sharp decline in profits. Combined profits for listed Chinese brokerages dropped 34 per cent in 2022, as decreased turnover reduced commission incomes and eroded investment returns, according to data from Kaiyuan Securities.
“It’s a highly competitive industry and if you cannot meet the company’s target by the end of the year, it will be time for you to leave,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “That’s how the rules of the brokerage industry play. Given the recent performance of the stock markets, we may see more such cases [of lay-offs].”