Expand the brand

The Hong Kong and Shanghai Banking Corporation likes to call its China business a homecoming. But HSBC, which advertises itself as 'the world's local bank', is none too familiar to mainland bank depositors. While Hong Kong still accounts for 25 per cent of its global operating profits, Credit Suisse First Boston analyst Michael Lever says 'its China business is not even a gnat on an elephant's bum'.

The world's second largest banking group intends to change that; it is celebrating its 140th anniversary this year with more acquisitions and new expansion plans for the middle kingdom.

Last month, HSBC paid US$1.04 billion to increase its stake in Ping An Insurance from 10 per cent to 19.9 per cent and last Thursday, Bank of Communications (Bocom) - 19.9 per cent owned by HSBC - became the first mainland bank to list in Hong Kong. Offices in Chengdu and Chongqing will soon open under HSBC's own name, adding to the 10 branches and four sub-branches already established across the country, the largest footprint of any foreign bank.

'We have been opening in China as soon as we have been allowed to do so,' says Mike Smith, chief executive of HSBC Asia.

Under World Trade Organisation accession terms, mainland banking regulators will completely lift restrictions on foreign banks by the end of next year. But Mr Smith is quick to say he thinks they will not pose a significant challenge to the giant Chinese lenders. He points out that the largest, Industrial and Commercial Bank of China, has more branches than HSBC has staff in Hong Kong.

'There has been steady deregulation in China and I expect that to continue,' he says. 'Will everything change as a result of lifting these restrictions? Of course not. It will remain a fairly difficult place to do business.'