Price War Looms over China's Brokerage Houses

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Last updated at: (Beijing Time) Sunday, April 28, 2002

Price War Looms over China's Brokerage Houses

Price war, which has rocked China's consumer electronics, car and other industries, is about to strike securities houses.

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Price war, which has rocked China's consumer electronics, car and other industries, is about to strike securities houses.

The war was sparked off by the decision early this month by the industry watchdog, the China Securities Regulatory Commission, to lower the commission for stock trading from a rigid 0.35 percent to a flexible maximum of 0.3 percent, starting from May 1.

In an immediate reaction, Jiangnan Securities said it would no longer charge commissions on each transaction, but rather an annual fee based on the capitalization of a customer's shares under its custody.

For example, a customer with shares worth less than 100,000 yuan in capitalization will pay 360 yuan for a whole year's service, and 560 yuan for a capitalization of 100,000 to 200,000 yuan, and so on.

More shocking news came shortly from a brokerage firm in southwest China's Sichuan Province, which announced that it would cut its commission to an unheard of 0.02 percent.

Commission has been a major source of income for Chinese brokers. For minor brokers, it is their only source of income.

Even before the announcement of the floatable commission system, brokers had been offering kickbacks to customers on one hand, and spending lavishly on branch offices on the other, in a bid to attract more customers.

The sluggish stock market has deprived many brokers of the easy money they earned in the past when the market was more dynamic and now the sliding commission level is giving them the last deadly blow.

"The time has passed in which profit from a single deal would allow a broker to live comfortably even if it received no business for the next three years," said Wang Weikang, a branch manager of United Securities in Shanghai.

China's stock brokers have been in a fierce competition in recent years to open more branches. The opening of a new branch is always marked by great pomp and ceremony.

But as time changes, their hard-earned triumphs are becoming a luxury too expensive to maintain in leaner days.

Industry sources predicted that a 30 percent cut in commission would force brokers to shut down one third of the branches.

Jin Xiaobin, head of the Haitong Securities Research Institute, said floating commissions were the international practice, and that a commission cut was inevitable in China.

But he warned that vicious competition in the form of unreasonable commission cuts would only bring disaster to brokers.

Not all brokers are engaged in the price war. Guangfa Securities announced that it will soon be offering tailor-made services to different types of customers based on the Internet, databank and IP/TV broadcasting system.

"Securities brokerage is a typical industry with value-added services. Service will hold the key to the fate of brokers," said Jin Xiaobin.

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