17-07-2025
China probes US$100 underwriting fee amid Xi price war clampdown
[BEIJING] China is investigating some of the nation's top investment banks over bond underwriting fees that hit below US$100, as regulators expanded a crackdown on a long-standing price war amid broader efforts by President Xi Jinping to curb cutthroat competition.
The National Association of Financial Market Institutional Investors (Nafmii) last week launched a probe into the six underwriters of a 35 billion yuan (S$6.3 billion) debt sale by China Guangfa Bank after their fee bids 'drew public attention'.
China Galaxy Securities and Industrial Bank charged fees as low as 700 yuan each before tax, Shanghai Securities News reported, citing a release from Guangfa that was later redacted to remove the details.
The probe comes just weeks after Nafmii reminded underwriting institutions to refrain from bidding below cost, following years of similar warnings. Brokerages and banks vie for business and better rankings in league tables with low price bids, though the race-to-the-bottom tactics have squeezed their earnings.
Such price competition has also plagued sectors ranging from new energy vehicles to food delivery, prompting President Xi to launch a broader campaign to address the practice that's hurting the economy.
The price war among underwriters reflects an intensifying trend of 'involution' in the industry, said Wang Chen, co-founder of Belt & Road Origin (Beijing) Tech, a provider of credit-risk analysis. Relevant authorities should further regulate the market and guide bond underwriting services back to rationality, he said.
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The combined fees for the six translated into an underwriting fee rate of 0.00018 per cent on the Guangfa notes. While underwriting fees for banks' bonds vary across institutions, the fees have been as high as 0.01 per cent in some cases, according to data compiled by local financial data provider
China's two largest brokers Guotai Haitong Securities and Citic Securities are also among those being investigated in the latest round.
Nafmii said any violations will be dealt with accordingly. Past penalties by the industry group have ranged from warnings to outright bans on fundraising.
The investment banks did not respond to Bloomberg requests for comments.
It's not the first time low underwriting fees have attracted scrutiny from Chinese authorities. In 2020, officials probed underwriters for a 0.003 per cent fee charged for a bond by the investment arm of Hainan province.
In 2019, the nation's securities regulator issued a rebuke to GF Securities for pricing its services below cost. The brokerage had offered to arrange a top-rated state-owned company's bond sale for a 0.0001 per cent fee, according to sources familiar with the matter at that time.
'Many firms believe that boosting their underwriting rankings is the key to landing future deals,' said Yao Yu, founder of Shenzhen-based YY Ratings. 'Large issuances help institutions grow scale and boost their chances of securing new businesses.' BLOOMBERG
