HSBC’s China ambitions face wall of doubt
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2015-07-02 15:53:02
A key element of HSBC’s strategy is a pivot to Asia, and to southern China in particular. But analysts say regulatory obstacles hindering foreign lenders in China will limit the bank’s growth potential on the mainland.
In the run-up to China’s entry into the World Trade Organisation in 2001, many bankers worried that larger, more competitive foreign lenders would overwhelm their Chinese counterparts, a fear embodied in the refrain, “The wolf has arrived.”
As it turned out, foreign banks arrived in China as lambs to the slaughter. While China’s economy grew at breakneck speed, the country’s domestic banks saw profits soar, while foreign lenders including Bank of America Merrill Lynch, Citigroup, Deutsche Bank and JPMorgan Chase as well as HSBC chafed against myriad regulations that stymied growth.
In his presentation this week, Stuart Gulliver, HSBC’s chief executive, cited the Pearl River Delta in southern Guangdong as a potential growth area, pointing to its close economic and geographic links to Hong Kong and a gross domestic product greater than Indonesia’s.
HSBC aims to raise its pre-tax profit from the region, mainly from trade finance, home mortgages, credit card and wealth management. But analysts are not convinced. “China is not going to save HSBC. HSBC is such a large organisation globally that no matter what new business they’re going to be able to dig out of China, it’s never going to be enough to offset the drag in Latin America, Europe and the US,” said James Antos, bank analyst at Mizuho Securities Asia.
Here is an overview of foreign banks’ position in China and the regulatory hurdles they face.Market share
By the end of 2013, 42 foreign banks operating in China controlled Rmb2.56tn ($413bn) in assets — 1.7 per cent of mainland banking assets, according to the latest official data.
HSBC operated 198 own-brand branches in mainland China in addition to 50 branches of Hong Kong-based Hang Seng Bank, in which HSBC owns a 62 per cent stake. That compares with 947 total foreign bank branches.
The figure pales in comparison with local banks’ extensive branch network. Industrial and Commercial Bank of China, the country’s largest, itself operates more than 17,000 branches.
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