China is ramping up efforts to consolidate its financial industry through mergers to set up “giant” banks and brokerages, reported Financial Times (FT). 

Approximately one in 20 of China’s rural banks have closed over the past year, as reported by the National Financial Regulatory Administration, amid a major overhaul of the banking industry following a prolonged property market crisis. 

The consolidation effort seeks to streamline China’s traditionally fragmented financial landscape, fostering a handful of robust, competitive firms capable of rivalling global giants such as JPMorgan and Morgan Stanley. 

President Xi Jinping has urged regulators to “cultivate a few top-ranked investment banks and investment entities . . . to enhance the effectiveness of financial services for the real economy”.  

In recent years, Beijing has worked to reduce risk in an overleveraged financial system by closing insolvent rural banks and restructuring local government debt.  

Authorities now aim to reshape the economy after years of credit-driven growth, by reducing the number of banks and establishing “leaner” and “more competitive” businesses.  

China’s 3,603 rural banks, which constitute around 95% of the country’s lenders, manage only 13.3% of total assets.  

The China Securities Regulatory Commission has also reiterated the need to “enhance core competitiveness of top-tier investment banks via merger and acquisitions”. 

George Magnus, associate at Oxford University’s China Centre, stated that a system with more big banks and brokerages would help “shape China’s financial policies in the long period of economic transitions that lies ahead . . . and can help de-risking the system in the process”. 

The rapid increase in mergers indicates that regulators are confident in having mitigated significant risks within the financial system, highlighted FT.