CITIC Securities, one of China's heavyweight brokers, has got the nod from the market watchdog China Securities Regulatory Commission to expand its business outside the mainland for the first time by setting up a Hong Kong unit.

The Hong Kong unit will get its registering capital of HK$10million (US$1.3 million) solely from the parent company, according to a statement from CITIC published on the Shanghai Stock Exchange on Friday.

CITIC Securities is among the first batch of domestic securities firms to explore the overseas market.

Earlier this month, the Shenzhen-based China Merchants Securities got regulator approval to purchase the Hong Kong-based Merchants Securities. The two both belong to China Merchants Group but are independent of each other.

This is the first strategic step for domestic brokers with sound performance to explore the market outside of the mainland, said Xu Gang, manager of the research department of CITIC Securities.

"Hong Kong is a big market," he said.

In recent years, more and more domestic enterprises have looked to Hong Kong to raise capital.

Last year, about HK$265.6 billion (US$ 34 billion) was raised on the Hong Kong stock market and about HK$57.7 billion (US$ 7.5 billion) was collected by domestic enterprises listed in Hong Kong.

Unfortunately, almost none of the domestic brokers can share in the booming market because none of them have Hong Kong units.

At the moment, the business is being taken by foreign investment banks and China International Capital Corporation, an investment bank jointly shared by China Construction Bank and Morgan Stanley.

China's stock market is undergoing fundamental structural reform, during which, the regulator announced, no firms can raise capital on the domestic market until the reform is completed.

Mainland enterprises urgently needing money have to go to overseas markets, said Xu. This makes the Hong Kong market more attractive, he said.

The sluggish domestic stock market provides domestic brokers with very limited room to make a profit.

Last year, 114 domestic brokers lost a total of 15 billion yuan (US$1.85 billion), according to Securities Association of China statistics.

Market expansion will bring new hope for brokers because the increased scope will reduce market risks, the manager said.

Brokers can learn a great deal when doing business in markets outside the mainland, said Yi Xianrong, a Beijing-based economist.

CITIC Securities is among the top 10 domestic brokers in terms of securities transaction value and gross assets. Last year it ranked No 1 in terms of net assets and profit growth of about 650 million yuan (US$80.15 million).

The Chinese government is encouraging its financial institutions to explore the overseas market.

On Thursday the China Insurance Regulatory Commission issued a draft circular encouraging domestic insurers to invest in the foreign insurance sector.

Mainland insurers applying to do business overseas should have a history of over two years and total assets last year of no less than 5 billion yuan (US$ 617 million).

Their foreign currency reserve last year should have been at least US$1.5 million.

(China Daily July 30, 2005)