HSBC’s Chinese strategy under attack

by Gill Montia

Story link: HSBC’s Chinese strategy under attack

Knight Vinke, the thorn in the side of HSBC, has accused the bank of making major losses in its Chinese business.

The asset management firm and leader of a shareholder revolt at HSBC, has pointed out that although the bank’s total Chinese profits stood at $903 million in 2006, $986 million was attributable to associates.

These associates are shares in local banks that have been acquired by HSBC and Knight Vinke maintains that if their input is put aside, HSBC-managed businesses in China posted an $83 million loss in 2006.

HSBC’s ability to build business in China is central to its emerging-markets strategy but foreign-owned banks in the country are at a disadvantage because of tight restrictions on their operations.

With this in mind, Knight Vinke is urging HSBC to relocate its legal headquarters from London to Hong Kong or Shanghai, as this would allow it to qualify for local bank status. Alternatively the bank’s Chinese businesses could become Shanghai listed.

HSBC is currently the largest foreign bank in China, with 15.5% market share, however, foreign banks account for only 1.4% of the total Chinese banking sector.

Knight Vinke is also arguing that HSBC should be focusing on investment banking in China because this particular area of business has fewer restrictions for foreign banks.