CITIC Construction Investment: Accelerating Regional Integration and Mergers & Acquisitions as Dual Main Lines Rewrite the Securities Industry Landscape

CITIC Construction Investment Research reports that Dongwu Securities is planning to acquire Donghai Securities, marking a new stage in provincial financial resource integration. Since 2025, industry mergers and acquisitions have been densely implemented, forming a dual mainline pattern: one focusing on top-tier mergers to create first-class investment banks, and the other led by local state-owned assets to develop regional champions, driving the industry from policy-led to policy and market co-driven. This shift promotes the industry from dispersed competition to tiered stratification, with the leading pattern evolving into multiple strong players, while weaker brokers are accelerated for cleanup. Regional integration of small- and medium-sized brokers opens a differentiated development path.

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CITIC Construction Investment: Accelerated Regional Integration and M&A Rewrite Industry Landscape

Dongwu Securities plans to acquire Donghai Securities, initiating a new phase of provincial financial resource integration. Since 2025, industry M&As have been densely executed, forming a dual mainline pattern: one focusing on top-tier mergers to build first-class investment banks, and the other led by local state-owned assets to develop regional champions. This shift from policy-driven to policy and market co-driven logic accelerates industry restructuring from dispersed competition to tiered stratification. The top-tier pattern is reshaping into multiple strong players, while weaker brokers are being cleaned out, and regional integration of small- and medium-sized brokers offers a new development path.

Core Logic of M&A

Event: The first market-based merger of state-owned securities firms within Jiangsu Province marks a new stage in provincial financial resource integration. On the evening of March 1, 2026, Dongwu Securities announced a suspension of trading due to plans for a major transaction: acquiring control of Donghai Securities via A-share issuance, with trading halted from March 2 for no more than 10 trading days. Dongwu Securities is a state-owned broker based in Suzhou, a longstanding listed firm; Donghai Securities is a state-owned broker in Changzhou, listed on the New Third Board. Their merger is the first market-based acquisition of state-owned securities firms within Jiangsu Province. Against this background:

1. The trend of industry M&As is increasingly following dual mainlines, with accelerated industry concentration. The two core features are: “top-tier mergers to create first-class investment banks” and “local state-owned-led regional integration to develop local champions.” Since 2025, there have been 11 M&A cases, the densest in the past decade. 1) Top-tier consolidation: Guotai Junan completed its merger with Haitong Securities; China International Capital Corporation announced the absorption of Dongxing Securities and Cinda Securities, representing large-scale integration of industry-leading comprehensive brokers, directly responding to regulatory calls to cultivate globally competitive first-class investment banks; 2) Regional integration: led by local state-owned assets, focusing on regional resource consolidation—examples include Dongwu Securities’ plan to acquire Donghai Securities, Western Securities’ acquisition of Guorong Securities, and Guosen Securities’ acquisition of Wanhua Securities—aimed at regional resource consolidation to address homogeneous competition and gather local resources to build regional leaders.

2. The driving logic of M&As is shifting from policy-driven to a dual resonance of market and policy, making M&As possibly a development necessity for brokers. Historically, broker M&As were mainly policy-led to mitigate regulatory risks, but this round is characterized by proactive market-driven choices aligned with policy guidance. On one hand, the decline in fee rates for light-capital businesses and rising capital thresholds for heavy-capital businesses squeeze profit margins for small- and medium-sized brokers, making consolidation essential for competitive advantage; on the other hand, policies like the “New Nine Regulations” support brokers through M&As, providing institutional guarantees and creating a virtuous cycle.

Core Impact of M&As

From an industry perspective, the current wave of broker M&As centered on top-tier consolidation and regional state-owned integration is gradually rewriting the long-standing “big but not strong, small and dispersed, homogeneous internal competition” pattern, accelerating the industry’s shift from “pyramid-like dispersed competition” to “tiered layered competition.” Specifically:

1. The restructuring of top-tier broker tiers shifts from “one super, many strong” to “multiple strong players,” with internationalization becoming the new core competitive arena. For a long time, China’s securities industry maintained a “one super, many strong” pattern led by CITIC Securities. In this wave, Guotai Junan and Haitong Securities have completed their merger, and China International Capital Corporation’s plans to integrate Dongxing Securities and Cinda Securities are underway, marking the industry’s entry into a “multi-strong” era.

Previously, competition among top brokers focused mainly on domestic market share, with prominent homogeneity issues; post-integration, more top brokers possess the capital to compete with international investment banks. Regulatory goals to develop 2-3 globally competitive first-class investment banks suggest that top brokers’ international expansion will receive stronger support. The new pattern extends their core competitiveness from domestic to global markets, potentially enabling them to benchmark against top international investment banks.

2. The cleanup of weaker institutions accelerates, with regional brokers forming a second-tier competitive cluster through alliances. The wave of industry M&As deepens, with highly differentiated impacts on small- and medium-sized brokers: those lacking core competitiveness face continuous squeeze and survival crises; those with regional advantages or niche capabilities find new growth paths through regional consolidation or boutique transformation, leading to a deep reshuffle of the sector.

Historically, the industry relied on license scarcity, creating an ecosystem where “having a license sufficed for survival.” Even weak brokers could sustain operations via traditional channels. Under current M&A trends, license resources are increasingly concentrated among top and regional leaders. For brokers lacking strong shareholders, local barriers, or unique business support, traditional models are no longer sustainable, and survival space is shrinking.

On December 6, 2025, CSRC Chairman Wu Qing emphasized in a speech at the China Securities Industry Association: “First-class investment banks are not exclusive to top institutions or patents; small and medium-sized firms should leverage their advantages and develop in niche areas, focusing resources on specialized client groups, key regions, and deep cultivation to build boutique, characteristic, and high-quality investment banks and service providers.” This provides clear policy guidance for small and medium brokers to break through via regional and specialized development.

Against this backdrop, regional financial resource integration led by local state-owned assets offers a path for local small- and medium-sized brokers to band together for breakthrough. Under the coordination of state-owned shareholders, regional brokers can consolidate local branches, clients, industry resources, and capital to develop regional champions. The integrated entities can secure resources from local governments’ major projects, listed companies, and high-net-worth regional clients, even building “regional moat” difficult for national leaders to shake. These regional champions need not compete head-on with top brokers across all sectors but can focus on deep local market engagement and regional economic integration, ensuring stable revenue and profit, and becoming key financial carriers for high-quality local economic development. As regional financial integration continues across provinces, these institutions are expected to grow into a second-tier industry group, distinct from national top brokers.

Market Price Fluctuation Uncertainty

Factors such as macroeconomic fluctuations, global economic changes, and investor sentiment can cause stock price volatility, impacting valuations of brokers, insurers, and other institutions. The performance of the banking and financial sectors is heavily influenced by market prices and trading volumes.

Earnings Forecast Uncertainty

Profitability of securities and insurance sectors is affected by multiple factors, and forecasts of industry valuation and performance carry inherent uncertainties. Intensified internal competition may also lead to deviations in predicted results.

Technological Innovation and Iteration

Rapid development of emerging technologies requires financial institutions to continuously adapt, but accelerated technological updates entail high R&D and talent training costs, potentially increasing operating costs for brokers and insurers. The burst of technological innovation also involves uncertainties.

(Source: First Financial)