MIKE CLARKE

China Securities Co (6066.HK; A-share code 601066.SH) said on October 30 that its board had approved a HK$6 billion capital injection into its wholly owned subsidiary, China Securities International Financial Holdings Ltd (China Securities International), to replenish its capital and strengthen its cross-border and integrated financial services capabilities. After the injection, the subsidiary's capital will rise from HK$5.5 billion to HK$11.5 billion.

It will be the biggest single capital injection since China Securities International was incorporated in Hong Kong in 2012. The amount is larger than the combined total of its three previous injections in 2017, 2021 and earlier this year, which stood at HK$1 billion, HK$2 billion and HK$1.5 billion respectively. The previous HK$1.5 billion injection was completed only in February, meaning the company is adding to its capital again after about eight months, at four times the previous amount.

Third-quarter growth slows sharply

China Securities Co also released its third-quarter results on the same day. Net profit attributable to shareholders for the first nine months was 10.257 billion yuan (about HK$12.1 billion), up 44.70 per cent year on year. Operating revenue rose 34.62 per cent to 23.274 billion yuan (about HK$27.4 billion).

However, growth slowed markedly in the third quarter alone. Net profit increased just 1.46 per cent year on year to 2.618 billion yuan (about HK$3.1 billion), while revenue rose 7.58 per cent to 7.046 billion yuan (about HK$8.3 billion). Net profit had grown by nearly 70 per cent, or 69.44 per cent, in the first half.

Part of the slowdown was due to a high comparison base. China Securities Co's third-quarter net profit last year surged 79.21 per cent year on year to 2.580 billion yuan (about HK$3 billion), making another period of strong growth difficult to achieve. A similar trend was seen among peers, with CITIC Securities (6030.HK) reporting a 20.19 per cent year-on-year decline in third-quarter net profit. China Securities Co attributed its first-nine-month profit growth to gains and losses from changes in fair value, as well as increased net fee and commission income.

The cyclical nature of its results is one factor behind China Securities Co's push overseas. Proprietary trading accounted for nearly half of total revenue in the first half, at 49.44 per cent. Investment banking is also heavily influenced by market conditions: the value of initial public offering mandates for which the company acted as lead underwriter fell 71.48 per cent year on year in the first half. Liu Yuchen, chief analyst for non-bank financials at Guolian Minsheng Securities, said differences in capital regulatory rules and business structures between the mainland and overseas markets meant offshore operations had relatively higher added value and could become an important source of industry profit growth over the medium to long term.

International business still a small contributor

Despite the record injection, China Securities International currently makes only a limited contribution to the group. Its revenue in the first half was 874 million yuan (about HK$1 billion), up 23.62 per cent year on year, while net profit rose 18.95 per cent to 546 million yuan (about HK$640 million). That represented about 7 per cent of the group's net profit attributable to shareholders for the period, which was 7.639 billion yuan (about HK$9 billion). Its growth of less than 20 per cent was also well below the group's overall growth of nearly 70 per cent. In other words, mainland operations remain the main driver of China Securities Co's earnings at present.

Among its peers, China International Capital Corporation's (3908.HK) international arm, CICC International, contributed 47.1 per cent of group revenue and 46.1 per cent of group net profit in the first half, a significant contrast.

China Securities International participated in seven Hong Kong IPO sponsorship projects completed during the first half, raising HK$31.277 billion. In September, it also obtained a licence from the Dubai International Financial Centre (DIFC) and established a representative office in Dubai. The group said its international business would be built around FICC — fixed income, currencies and commodities — with derivatives as a key focus. Geographically, it would be "rooted in Hong Kong, facing Asia and looking to the world". This forms the "internationalisation" component of the "three ZHIs, one new and one transformation" strategy unveiled by China Securities Co this year.

11 brokerages have injected capital into Hong Kong this year; China Securities Co ranks about sixth

According to mainland media outlet Securities China, 11 brokerages, including China Securities Co, had injected capital into their international subsidiaries between the beginning of the year and October 30. Incomplete tallies by several mainland media outlets put the total value at more than 50 billion yuan (about HK$59 billion), with many of the figures representing "no more than" the stated upper limit.

By value, China Securities Co's HK$6 billion injection, equivalent to about 5.1 billion yuan, ranks around sixth among the 11 brokerages:

  • CITIC Securities raised 16 billion yuan (about HK$18.8 billion) through a targeted H-share issue to develop its international business. The first tranche, equivalent to 10 billion yuan (about HK$11.8 billion) in Hong Kong dollars, has been injected into CITIC Securities International;
  • Guotai Haitong (2611.HK) plans to inject 9 billion yuan (about HK$10.6 billion);
  • Huatai Securities (6886.HK) plans to inject no more than HK$9 billion;
  • China Merchants Securities (6099.HK) plans to inject no more than HK$7.6 billion;
  • GF Securities (1776.HK) plans to inject no more than HK$6.101 billion; and
  • CICC plans to inject 4.2 billion yuan (about HK$4.9 billion).

Among mid-sized brokerages, Guolian Minsheng (1456.HK) earlier received a no-objection letter from the China Securities Regulatory Commission allowing it to inject no more than 2 billion yuan (about HK$2.4 billion) into Guolian Hong Kong. Soochow Securities received approval for an injection of no more than HK$2 billion, while Shanxi Securities and HuAn Securities received approval for HK$1 billion and HK$500 million respectively.

Separately, Caida Securities announced on October 29 that it planned to invest HK$100 million to establish a wholly owned subsidiary in Hong Kong. This represents a new market entry rather than a capital injection into an existing subsidiary.

Capital determines the scale of business

In Hong Kong, the scale of business a brokerage can undertake depends to a large extent on its capital. Licensed corporations must meet the minimum paid-up share capital and liquid capital requirements under the Securities and Futures (Financial Resources) Rules of the Securities and Futures Commission. The larger the scale of margin financing, underwriting, market-making and derivatives operations, the more capital is required.

Rongrong Zhang, a director in Fitch's non-bank financial institutions ratings team, said in an earlier interview with mainland media that active markets and rising demand for cross-border financing were expected to encourage mainland brokerages to continue expanding their Hong Kong operations. They might also inject further capital to support underwriting, market-making, cross-border structured products and margin financing, while meeting the SFC's liquid capital requirements. The non-bank financial research team at Kaiyuan Securities also said additional capital would directly expand the scale of client margin financing and trading operations.

On the demand side, a CICC research report said mainland brokerages were at the start of a new round of overseas expansion, driven by three factors: mainland companies accelerating their overseas expansion, the internationalisation of the yuan and the opening-up of mainland capital markets. Mainland brokerages accounted for more than 70 per cent of the Hong Kong IPO sponsorship market in 2025. Guotai Haitong's non-bank financials team expects the international business of Hong Kong brokerages to reach HK$354.4 billion in 2028. If the market share of mainland brokerages' international subsidiaries rises from about 29 per cent in 2025 to 47 per cent, the corresponding international business revenue could achieve compound annual growth of 31 per cent.

Industry observers describe the model in which mainland brokerages, backed by their parent companies, follow mainland enterprises overseas to provide services as "accompanying companies going global". Under this model, mainland brokerages have advantages over local firms in communication costs and understanding clients. They also enjoy stronger client loyalty and bargaining power, while their fees are generally higher than those in the mainland, where price competition is intense.

What to watch next

First is the speed at which the funds are actually put in place. Overseas capital injections must be filed with the China Securities Regulatory Commission or obtain a no-objection letter, and the process can be lengthy. For example, it took Shanxi Securities more than seven months to secure approval for a HK$1 billion injection into its Hong Kong subsidiary.

Second is the share of international business in group revenue and profit. China Securities International currently accounts for about 7 per cent of group net profit. Whether that proportion can rise significantly will be the most direct measure of the effectiveness of the latest injection.

Third is talent and integration. Capital alone is not enough. The gap between brokerages will be determined by whether they can attract trading and compliance professionals in Hong Kong and create synergies with mainland frontline operations.