HSBC to speed up expansion in China

Richard Yorke, HSBC's China president and CEO, talks to FinanceAsia about the expansion of the lender's network and the competition among local and foreign banks in the world's fastest growing economy.

What is HSBC's expansion plan in China?
We would want to open outlets in three to five new cities and add up to15 sub-branches in existing cities each year. The numbers are higher than before because under CEPA (Closer Economic Partnership Arrangement) Six, we can open outlets in more cities in Guangdong Province. We currently have 99 outlets in 23 cities, and are looking to opening our 100th outlet in the very near future. We opened 19 outlets last year including three new branches in three new cities, that's pretty much what we would do every year. Our geographic footprint will increase, that's very important for us from a customers' perspective. But we don't disclose the budget for the investment.

What encourages HSBC to extend its network in China?
The type of things our customers, the multinationals, have changed over the past 10 years. Ten years ago, the large multinational primarily came to China to set up manufacturing factories for exports but now, while that is still happening, the majority of the growth is actually contributed by multinational companies coming to China to access the country's domestic consumption story. If you go to the shopping malls here, if you look at all the different retailers, they are here selling domestically. We have to expand our network to continue to support them as they are expanding all over China.

Our global banking team that looks after local corporates is based in Beijing, which is where the majority of the largest corporates' headquarters are located. Meanwhile, we continue to expand our footprint across other provincial capitals in China. The ability to develop a strong relationship with provincial champions is much simpler if you are in that province rather than trying to look after them from Shanghai or Beijing. So again, a bigger geographic footprint is very important.

Also, the number of our premier customers increased by 40% last year as more and more of those customers travelled overseas and sent their children to study abroad and we want to help to facilitate that process.

Where does the competition come from and how does HSBC stay competitive?
There is competition not just from the local banks but also from the foreign banks. For instance, in the wealth management space, all the banks have equivalent services. The key thing is to differentiate yourself. We primarily focus on customers who have requirements for international products that we are able to deliver. Our products in those areas are competitively better, which differentiate us from other domestic or foreign competitors. Would we be aggressively bidding for 10-year infrastructure loans in China? No, because that's our competitors' advantage. But would we be competitively bidding for serving companies that import and export? Absolutely. We are very focused on what type of customers we are dealing with.

Our strength is not the domestic capability here because there are a lot of very strong local banks that can provide domestic capability. Our differentiator is giving them an overseas network as they expand outside of China as part of the go-abroad policy.

Who are your big competitors in China?
That depends on which business you look at. Naturally, for the most part now, the biggest competitors are the local banks. As far as I am concerned, for our premier personal banking our biggest competitor is China Merchants Bank. That's who I benchmark ourselves against, I don't benchmark ourselves against Citi or Standard Chartered. Our target customers are most likely to be banking with, or want to bank with China Merchants.

As for the global banking business, we would probably compete with Citi Bank for an American multinational; and on the treasury side we probably compete with Deutsche Bank. Despite the fact that Bank of East Asia has the second largest network after us, to be honest, we don't compete with Bank of East Asia very much because it is a Greater China bank.

What was the year 2009 like?
2009 was a challenging year globally, we were clearly affected by the recession because so many of our products are related to international trade.

In overall terms, our businesses continued to perform very well here. We continued to build our network and we increased our loan volume by 20%, despite the fact that between the end of 2008 and the beginning of 2009 the loan demand from foreign companies was quite weak as they were affected by the global recession. But we were quite fortunate because compared with other foreign banks in China local corporates account for a greater percentage of our customer base, and local credit demand remained strong. Especially in the second half of last year, we saw a strong pick up, and towards the end of the year, foreign banks returned in terms of credit demand.

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