HSBC Holdings expects the emerging mainland market to become one of its largest regional cash management centres within five years. Speaking in Shanghai, HSBC's head of payments and cash management in China Shannon Cheung said the forecasts were based on expectations that foreign banks would be granted improved access as geographical and business restrictions were chipped away after World Trade Organisation entry. For now, foreign banks are barred from doing business with domestic companies but by 2004 they will be allowed to have transactions with millions of domestic companies served exclusively by mainland banks at present. The reach of foreign banks is now confined to the near-400,000 foreign-invested companies, and their small branch networks have meant business has so far been limited. HSBC, with only nine branches, has the largest network of a foreign bank. Mr Cheung said the share of foreign banks in cash management in China was very small but growth had been encouraging. HSBC saw the number of transactions last year double from a year earlier, with its clientele rising by a factor of 10, to 500 in three years. Mr Cheung said business growth would be 'very good' after 2005, a year after foreign banks were free to conduct yuan business with domestic firms, thus helping to make China the region's key contributor to the bank. Hong Kong now holds the No 1 slot. Cash management, largely supported by electronic interface, refers to managing cash and liquidity for corporates - a service that is in its infancy in China. However, Mr Cheung said the sector was picking up on the back of the huge fund flows from China's hectic trade volume. Demand for cash management services was set to widen as mainland companies found they offered security and convenience. The trend of leading multinational companies, including Alcatel and GE Plastics, moving their regional headquarters to the mainland had also prompted foreign banks to make their way to China in anticipation of rising demand for a higher level of sophistication in banking, Mr Cheung said. Also, more mainland firms were exploring overseas opportunities, providing foreign banks with the chance to offer their skills in executing cross-border transactions. HSBC has struck strategic alliances with the big four mainland banks; HSBC offers its sophisticated, world-class electronic banking network while mainland banks have country-wide networks. Cross-bank fund transfers can now be done within 24 hours via the bank's electronic system which has linked with mainland banks and their 26,000 branches throughout the country. 'Two years ago, a telegraphic-transfer collection took a long time to process while a cross-bank fund transfer is always subject to delay,' Mr Cheung said. To foreign banks, cash management has a strategic importance to their operations by providing them a cheap source of funding. He said they paid 1 to 2 per cent interest to our depositors, but if they sourced funds through bilateral loans, they paid a margin of up to 5 per cent on the loans. The ability to source cheap funding is crucial to banks' profitability.