Deleveraging and deregulation are hampering the performance of Chinese investment banks by undermining revenue from the onshore bond market and brokerage fees.
China’s share of global investment banking spending saw a sharp drop off for the first three quarters of 2017, according to the latest fee data from Dealogic.
The abrupt decline follows a tripling in the share of Chinese banks during the three year period from 2013 to 2016.
The upper reaches of Dealogic’s Asia-Pacific investment banking league rankings are now dominated by non-Chinese firms, with the top Chinese contender CITIC Securities, only coming in at seventh place with $340.6 million in revenue for the first three quarters.
According to The Financial Times a key reason for the ailing fortunes of Chinese investment banks in 2017 is Beijing’s heavy-handed deleveraging campaign, which has stifled the onshore bond market following a roaring boom period.
Revenues from Chinese onshore bonds have dropped to half their levels in 2016, as Beijing endeavours to contain perilous levels of debt.
Another factor behind the poor performance of Chinese investment banks this year is deregulation, with intensifying competition thinning out the ample brokerage fees that serve as the sector’s single biggest revenue source.
First half trading revenues for 33 mainland listed investment banks saw a 27% decline compared to the same period last year, according to figures from Wind Information based on exchange filings.
Chinese bankers are reportedly unfazed by their languishing international performance, however, are they are more preoccupied with the domestic market than competition on the global arena.
Their share of both the onshore debt and equity capital markets saw slight gains for the first three quarters of this year, while they now account for 95% of fees for onshore bonds.
Chinese bankers also expect the onshore bond market to bounce back soon, with expectations that the deleveraging campaign will soon ease, which will bring down yields and prompt more companies to issue debt.
“I believe that bond yields in the onshore market have probably peaked,” writes Chen Long at Gavekal-Dragonomics.
“The financial tightening that drove yields up in the first half is also probably ending as the [macreconomic] data become weaker.”