Cover Story: Chinese Brokerages’ Dual Roles in Bond Market Sparks Concern for Conflicts of Interest That Raises Systemic Risk

China’s securities brokerages are thriving in the bond market, but a surge in the fixed-income sector has sparked concerns over regulatory loopholes and conflicts of interest.

In recent years, China’s securities brokerages have increasingly turned to fixed-income businesses as a cornerstone of their operations. Bonds now dominate the portfolios of Chinese securities brokerages, accounting for 65% to 70% of their holdings, according to Zhao Ran, chief analyst of non-bank finance at Citic Construction and Investment Securities. As of January, brokerages held about 4.5 trillion yuan ($632.2 billion) in bonds.