HSBC is one of the world’s most successful banks. It has over 6,100 branches scattered around 73 countries. I have just recently found out that HSBC stands for the Hong Kong and Shanghai Banking Corporation. The origins of the bank lie in Hong Kong and Shanghai, where branches were first opened in 1865. Today, HSBC’s headquarters is in London, but it refers to both London and Hong Kong as its “home markets”. It is one of the largest investors amongst foreign banks in Mainland China, having invested in select mainland financial services entities and in the growth of its own operations, including a 19% stake in Bank of Communications and 8% in the bank of Shanghai.
HSBC’s branch in Shanghai conducts in corporate and business banking services. I was lucky enough to visit the branch, where I gained more in depth information about the bank’s operation in the Chinese market. The system is very different from that of the United States and the rest of the world. The Chinese government likes to keep things more centrally controlled.
This government control is also very strict. Banks take a lot of the monetary responsibility in China, unlike the US where it’s the responsibility of the Federal Reserve. HSBC in China has to insure clear communications with clients from the corporate, business, and individual sectors about the constantly changing regulatory environment and its risks. This is one of the challenges the bank faces in Mainland China. Hong Kong, however, is less strictly regulated, making it the hub for international banking.
One of the other challenges that HSBC has is how difficult it would be to take investments and client assets out side of China. Transactions are usually supported by documents that have regulator’s approval. Moreover, the corporate lending structure is usually uncommitted, secured, and regulated for a specific purpose.
However, China is slowing the pace with its regulatory environment. The regulations are easing for banking investments in order to support future economic growth. This helps promote the Chinese Yuan to be more market oriented and international (even though HSBC offers services in both local and foreign currencies). The documentation requirements are expected to be removed. In addition, China is providing the Chinese businesses with dividend payments, utilizing surplus liquidity by allowing intra group lending, and financial guarantee for offshore loans.
As mentioned, the regulatory environment in China is constantly changing. The changes that are happening today are promoting flexibility for more economic growth. Financial intermediaries like the HSBC are responsible for such growth. The right amount of flexibility will offer them the opportunity for economic prosperity.