HSBC Takes Stake In Shanghai Bank

by Mary Swire, Tax-News.com, Hong Kong

31 December 2001

Hongkong and Shanghai Banking Corp, the SAR-based unit of London-headquartered HSBC, said at the weekend that it had it had signed an agreement to acquire an 8% interest in the Bank of Shanghai for a consideration of 517.92m yuan (about HK$485m, US$70m]. This makes HSBC the first foreign lender to take an equity stake in a mainland bank after China's entry to the World Trade Organisation. Bank of Shanghai had assets of 96bn yuan at December 31, 2000. It has 196 branches throughout Shanghai and 4,500 staff.

The World Bank's International Finance Corp (IFC), which was invited by the mainland to provide technical assistance to the fledgling Bank of Shanghai when it was created in 1995, took a 5% equity stake in the bank for US$2m. However, the share of the Chinese banking business owned by foreign operators remains low. HSBC operates nine branches on the mainland.

According to the People's Bank of China, loans made by foreign banks in China were US$18.53bn at the end of June 2001, less than 0.2% of the total mainland loan book of 10.65 trillion yuan.

Under China's WTO agreement, foreign banks will be allowed to conduct business in yuan with Chinese enterprises two years after WTO accession, and with individuals a further three years later. The sector will be fully opened in five years' time.

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