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- Asset management boom leaves brokerages behind
Date: 23-May-2007 Sources: (Shenzhen Daily)
CHINESE brokerages are trying to beef up their fledgling asset management arms but are largely missing out on the country's fund boom because of tight regulatory controls as the government cleans up the brokerage sector.
In the long run, securities firms are expected to enjoy explosive growth in the business, posing stiff competition to mutual fund houses, commercial banks and trust firms which are jostling to tap the country's US$2 trillion in household savings.
But so far, brokerages are expanding only sluggishly in a fund management sector that has been booming since China's stock market bull run began early last year.
Mutual funds alone have more than 1 trillion yuan (US$130 billion) under management and are set for further expansion, as they sign up to manage corporate clients' pension funds and with the government poised to approve segregated account management for high net-worth individuals and institutions.
But brokerages, following two years of development, have just 50 billion yuan under management.
'There are just too many restrictions on securities firms' asset management businesses,'said Wu Liang, general manager of the asset management department of Everbright Securities.
Previously, brokerages were barred from issuing asset management products to the public.
They were only allowed to manage funds for clients, mainly corporations, and the business proved to be a disaster.
Some were found misusing clients' money, while some incurred heavy losses from stock speculation in a bear market. Several large brokerages went bankrupt and were absorbed by rivals.
'Regulators are concerned brokerages would use their asset management business to bankroll their own investments,'said David Lee, a director at China Merchants Securities, which manages 9 billion yuan via a fund of funds and a cash fund.
The China Securities Regulatory Commission (CSRC), the top securities watchdog, is still in the midst of a campaign to improve brokerages' governance.
The CSRC is also tightening its supervision over the entire securities sector, mindful of growing irregularities such as insider trading and price manipulation in the industry. It has been dragging its feet in endorsing brokerages' applications for launching new products, allowing only about 10 of the country's 100 or so securities firms to conduct asset management business.
'Brokerages have yet to improve their internal controls. The industry is unable to do so on a large scale at the moment,'said a source close to the CSRC.
The source also said it was not urgent for brokerages to enter the business given that most were basking in record commissions from soaring A-share market turnover.
The CSRC caps the size of brokerages' funds at 3 billion to 3.5 billion yuan each, versus 10 billion yuan for a mutual fund.
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