A view of Lujiazui Financial District in Shanghai Photo: VCG

Chinese leading securities firm Guotai Junan Securities has announced it will merge with smaller rival Haitong Securities in a bid to build a first-class investment bank and promote the high-quality development of the industry, with both companies having halted trading from Friday.

Guotai Junan plans to take over Haitong by way of absorption and a share exchange, through which shares will be issued to holders of Haitong's yuan-denominated A-shares and Hong Kong-listed H-shares, according to separate statements from the two companies.

The merger requires approval from each company's boards and shareholders, as well as regulatory authorities, their statements said. Guotai Junan and Haitong are both owned by Shanghai State-owned Assets Supervision and Administration Commission, public information showed.

According to the companies' financial results in 2023, the combination of the two financial institutions is set to create a giant brokerage with total assets of 1.68 trillion yuan ($236.9 billion), the biggest in the industry in China, domestic news site the Securities Times reported on Friday.

It's worth noting that this is the first major merger in China's financial industry since the release of the State Council Nine-Point Guideline in April, a document that mapped out plans to boost the capital market through 2035.

"The merger of the two securities firms will help give better play to each other's advantages, improve their layout in key areas and key industries so as to strengthen their competitiveness and better serve the real economy," Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Friday.

More importantly, the move will help integrate Shanghai's advantages to build a first-class investment bank that is in line with the city's status as an international financial center and enhance the city's global influence, Xi said.

The Central Financial Work Conference held in Beijing last October pointed out efforts to boost the competitiveness and influence of Shanghai as an international financial center. It also said it is essential to improve institutional positioning, support large state-owned financial institutions in becoming stronger and better, playing a major role in serving the real economy, and being a cornerstone of financial stability.

Xi said more mergers and acquisitions are expected in the country's financial sector to strengthen the allocation of resources and deepen the financial sector's role in serving the real economy.

Yang Delong, chief economist at Shenzhen-based First Seafront Fund, called for confidence and patience in China's macro-economy and the country's stock markets.
 
"Efforts are needed to step up fiscal policies, for example, the release of more consumption vouchers to stimulate spending and the improvement of people's well-being, to bring back social confidence. With these forceful measures, the A-share market is expected to reverse a weak situation and show an upward trend," he said.