Chinese Brokerages’ Dual Roles in Bond Market Sparks Concern for Conflicts of Interest That Raises Systemic Risk

Firms’ dependence on underwriting and trading debt securities surges amid regulatory gaps

China’s securities brokerages are thriving in the bond market, but a surge in the fixed-income sector has sparked concerns over regulatory loopholes and conflicts of interest.

In recent years, China’s securities brokerages have increasingly turned to fixed-income businesses as a cornerstone of their operations. Bonds now dominate the portfolios of Chinese securities brokerages, accounting for 65% to 70% of their holdings, according to Zhao Ran, chief analyst of non-bank finance at Citic Construction and Investment Securities. As of January, brokerages held about 4.5 trillion yuan ($632.2 billion) in bonds.

The bond investment advisory business, in particular, has seen rapid growth, with leading brokerages such as Citic Securities and Guotai Junan managing bond advisory services worth hundreds of billions of yuan. Citic Securities has developed a comprehensive advisory system, reaching a business scale of 450 billion yuan by the end of 2023.