CHINA’S INVESTMENT BANKERS are taking their price war to the fourth decimal place.

In the latest sign of intensifying competition among the country’s underwriters, GF Securities Co. this month offered to arrange a top-rated state-owned company’s bond sale for a 0.0001% fee, people familiar with the matter said. The bid was so low that China’s securities regulator issued an unprecedented rebuke of the brokerage for pricing its services at below cost.

The nation’s underwriters are adopting race-to-the-bottom strategies to boost their positions in league tables as the industry becomes increasingly crowded. The hope is that a higher ranking will open the door to more lucrative deals, but some market observers say the tactics are unsustainable. Several securities firms have been cutting pay and reducing staff as earnings come under pressure, while calls for industry consolidation are growing louder.

“Competition has become so intense,” said Chenghao Xu, deputy manager of the asset management department at Guolian Securities Co. in Shenzhen.

A Bloomberg Intelligence index of listed Chinese securities firms rose 0.1% as of 9:32 a.m. local time on Monday.

In an announcement dated April 19, the Guangdong branch of the China Securities Regulatory Commission (CSRC) asked GF Securities to rectify its underwriting practices and submit a written report to the regulator by May 30. It was the first time the CSRC has issued a public warning on fees to a single bond underwriter. GF Securities didn’t respond to an email seeking comment.

While Chinese debt issuance has soared in recent years, underwriting fee rates have shrunk as the number of competitors has increased.

The charge for selling corporate bonds in 2007 was typically upwards of 1% of the deal size, according to a banker responsible for debt sales at one of China’s biggest brokers. It dropped to an average 0.44% between October 2017 and March 2018, with more than 100 deals during that period paying 0.1% or less, according to a report by the Securities Association of China. In the US, underwriting fees averaged 0.6% for corporate bonds issued this year, data compiled by Bloomberg show.

The number of bond underwriters in China rose to 138 in 2018 from 102 in 2013, according to Bloomberg data.

“Vicious competition is having a negative impact on the entire bond underwriting industry,” said Yang Hao, an analyst at China Post Securities Co.

The trend is similar for equities and convertible bonds. Five of China’s biggest investment banks earned a combined 418,948 yuan ($62,261), or 0.001% of the deal size, for underwriting a private share placement for Huaxia Bank Co. in January. That was less than the 500,000 yuan Huaxia paid for disclosing the transaction in newspapers.

China National Nuclear Power Co., a state-owned power producer, said on April 10 that underwriters will earn a 0.03% fee for the company’s 7.8 billion yuan convertible-bond sale.

While analysts including David Yuan Wei of McKinsey & Co. have said that long-term consolidation in the securities industry could help ease pressure on fees, the environment may get worse before it gets better.

Recent rule changes have opened the way for foreign securities firms to enter China or, for those already there, bulk up their local presence. UBS Group AG, JPMorgan Chase & Co. and Nomura Holdings Inc. have all won regulatory approval for majority control of their local securities joint ventures, while DBS Group Holdings Ltd. has an application pending. — Bloomberg

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