China is accelerating efforts to build a range of giant banks and brokers as it strives to consolidate the financial sector and enable it to better survive the economic shock.
According to China's National Financial Regulatory Bureau, in the past year, twenty rural banks in the country have closed their doors in the past year.
In separate data compiled by S&P Global Ratings, Chinese securities companies have merged or are managing one-fifth of the industry's assets since the second half of 2023.
The integration campaign aims to transform the fragmented financial sector in Chinese history and produce some powerful and dynamic companies that can compete with the likes of JPMorgan Chase and Morgan Stanley.
President Xi Jinping has previously urged regulators to "cultivate some of the highest ranking investment banks and investment entities … to improve the effectiveness of financial services in the real economy." Last month, the China Securities Regulatory Commission reiterated the need to “enhance the core competitiveness of top investment banks through mergers and acquisitions.”
George Magnus, a partner at the University of Oxford China Center, said that having more large banks and brokerage firms would help “shape China’s financial policies over the long economic transformation…and could help reduce the risk of the system in the process.”
The acceleration of the merger reflects the authorities' belief that they have eliminated the worst risks in the financial system and can now make it form to support China's growth.
"It could be a decade, not a few years," said Ryan Tsang, managing director of S&P Global Ratings, noting that the process may only be halfway through. “The key is not only to reduce the number of institutions, but also to enhance their ability to manage risks.”
In recent years, Beijing has attempted to reduce risks in the huge financial system by closing indebted rural banks, undermining debt-based real estate developers, such as Evergrande, and prompting local governments to reorganize their debts.
As a result, “China’s financial system is now at its most stable position in the past decade,” said Richard Xu, a financial analyst at Morgan Stanley. “The timing seems to be right to push for further simplification of the industry and increase efficiency.”
In 2025, analysts expect more mergers for state-owned brokers, trust companies and financial leasing groups as policymakers seek to create leaner and more competitive financial institutions.
After years of credit-driven growth, authorities are trying to reshape the economy. To do this, they want to reduce the number of banks. China's 3,603 rural banks account for nearly 95% of the country's lenders, but manage only 13.3% of its total assets.
Brokers were hit by the collapse of trading traffic and were also affected. “We may see wider changes involving multiple brokers under the protection of managers in the same country,” said Karen Wu, an analyst at Creditsights in Singapore.
Regulators are promoting cooperation between China’s oldest investment bank (Gootai Junan) and Gootai Junan and Haitong Securities in Shanghai, where six state-owned brokers (SASAC), supervised by local state-owned assets manager SASAC, according to public announcements and company documents.
As Beijing reshapes its more volatile global economy, analysts also expect Beijing to invest more, such as international lending, debt restructuring in belts and road countries, and the use of the yuan.
"In all these functions, Chinese finance will cross the sword with U.S. financial institutions, so from a Chinese perspective, it makes sense on the defensively to enhance, expand and rationalize China's financial industry," Magnus said.