International Management 8th Edition by Fred Luthans,Jonathan Doh

Exercise 47

HSBC in China
Introduction
After years of negotiations, China finally acceded to the World Trade Organization (WTO) in December 2001 (see Exhibit 1).This development was a significant milestone in China's integration with the global economy.One of the most important and far-reaching consequences was the transformation of China's financial sector.China's banking, insurance, and securities industries were long due for a major overhaul, and the WTO requirements guaranteed that the liberalization of China's economy would extend to the important financial sector.China's banking sector had become a casualty of the state.Banks and other financial institutions haphazardly extended loans to stateowned enterprises (SOEs) based not on sound credit analysis but favoritism and government-directed policy.As a consequence, crippling debt from bad and underperforming loans mounted, with no effective market disciplines to rein it in.
China recognized that opening up the banking sector could bolster its financial system.Foreign management would help overhaul the banking sector and put the focus on returns, instead of promoting a social agenda.This fiscal agenda would ultimately lead to a stronger and more stable economy.Yet after years of direction from the state, Chinese bank managers did not have the necessary skills to transform the banks on their own.Guo Shuqing, shortly after being promoted to chairman of China Construction Bank, admitted that, "more than 90 percent of the bank's risk managers are unqualified."
Immediately upon accession to the WTO, China's banking sector began to open to foreign banks.Initially, foreign banks were allowed to conduct foreign currency business without any market access restrictions and conduct local currency business with foreign-invested enterprises and foreign individuals.In addition, the liberalization of foreign investment rules made Chinese banks attractive targets for foreign financial institutions.Sweeping domestic changes have followed.Strong emphasis has been placed on interest rate liberalization, clearer and more consistent regulation, and a frenzy of IPOs of state owned banks has followed.It was in this context that HSBC rapidly expanded its presence in China.
Exhibit 1 China's WTO Commitments

HSBC, known for its international scope and careful, judicious strategy, made a series of key investments between 2001 and 2005 that arguably gave it the most extensive position in China of any foreign financial group.These investments included two separate transactions that resulted in a 19.9 percent stake in Ping An insurance, and, in June 2004, a $1.8 billion successful tender for a 19.9 percent stake in Bank of Communications, the fifth largest bank in China.HSBC had a long history in Asia, and was uniquely positioned to take advantage of China's vast population and mushrooming middle class, high savings rates (in the range of 40 percent), and huge capital investments (US$50 billion FDI in 2005).HSBC recognized that the current banking system was not capitalizing on this vast opportunity, and sought to get in on the ground floor in this new environment.Perhaps, with further liberalization, however, China would allow future investors to establish even greater claims to Chinese banks.Citigroup's successful effort to gain a controlling stake in Guandgong Development Bank appeared to undermine earlier investors who had been limited by China's rule that allowed foreigners to own no more than 19.9 percent of domestic financial institutions.Did the huge potential rewards of being an early mover in China mitigate the promise of uncertainty and risks of doing business in an emerging market? After being burned in Argentina, could HSBC relax its conservative philosophy in its China strategy? If the economy took a turn for the worse, HSBC could face heavy losses.On the other hand, could HSBC afford not to be an early mover in a region where it had a longstanding presence?
Background on HSBC
History
Thomas Sutherland founded the Hongkong and Shanghai Banking Corporation (Hongkong Bank) in 1865 to finance the growing trade between Europe, India, and China.Sutherland, a Scot, was working for the Peninsular and Oriental Steam Navigation Company when he recognized a considerable demand for local banking facilities in Hong Kong and on the China coast.Hongkong Bank opened in Hong Kong in March 1865 and in Shanghai a month later.
The bank rapidly expanded by opening agencies and branches across the globe, reaching as far as Europe and North America, but maintained a distinct focus on China and the Asia-Pacific region.Hongkong Bank helped pioneer modern banking during this time in a number of countries, such as Japan, where it opened a branch in 1866 and advised the government on banking and currency, and Thailand, where it opened the country's first bank in 1888 and printed the country's first banknotes.By the 1880s, the bank issued banknotes and held government funds in Hong Kong, and also helped manage British government accounts in China, Japan, Penang, and Singapore.In 1876, the bank handled China's first public loan, and thereafter issued most of China's public loans.Hongkong Bank had become the foremost financial institution in Asia by the close of the 19th century.
After the First World War, the Hongkong Bank anticipated an expansion in its Asian markets, and took a leading role in stabilizing the Chinese national currency.The tumultuous Second World War, for its part, saw most of the bank's European staff become prisoners of war to the advancing Japanese.
The Postwar Years
In the postwar years, Hongkong Bank turned to dramatic expansion through acquisitions and alliances in order to diversify.The acquisitions began with the British Bank of the Middle East (Persia and the Gulf states) and the Mercantile Bank (India and Malaya) in 1959, and were followed by acquiring a majority interest in Hong Kong's Hang Seng Bank in 1965.The 51 percent controlling interest in Hang Seng Bank was acquired during a local banking crisis for $12.4 million.As of 2002, HSBC's interest in the bank was 62 percent and was over $13 billion.Hang Seng, which retained its name and management, has been a consistently strong performer.The bank made further acquisitions in the United Kingdom and Europe (from 1973), North America (from 1980), and Latin America (from 1997), as well as other Asian markets.
Under Chairman Michael Sandberg, Hongkong Bank entered the North American market with a $314 million, 51 percent acquisition of Marine Midland, a regional bank in upstate New York.In 1987, the bank purchased the remaining 49 percent, doubling Hongkong Bank's investment and providing the bank a significant U.S.presence.As a condition of the acquisition, however, Marine Midland retained its senior management.
Move to London and Acquisitions
In 1991, Hongkong Bank reorganized as HSBC Holdings and moved its headquarters in 1993 to London from Hong Kong.Sandberg's successor, William Purves, led HSBC's purchase of the U.K.'s Midland Bank in 1992.This acquisition fortified HSBC's European presence and doubled its assets.The move also enhanced HSBC's global presence and advanced the bank's reputation as a global financial services company.
Other major acquisitions of the 1990s included Republic Bank and Safra Holdings in the United States, which doubled HSBC's private banking business investments moves in Brazil and Argentina in 1997, and acquisition of Mexico's Bital in 2002.In 2000, HSBC acquired CCF in France.By 2006, HSBC had assets exceeding $1,860 billion, customers numbering close to 100 million, and operations in six continents.In recent years, HSBC has made a major commitment to emerging markets, especially China and Mexico, but also Brazil, India, and smaller developing economies.
Expansion, Acquisition,
and Succession
The World's Local Bank
HSBC holding company set up a group policy in 1991 that established 11 quasi-independent banks, each a separate subsidiary with its own balance sheet.The head office provided essential functions, such as strategic planning, human resource management, and legal, administrative, and financial planning and control.This setup promoted prompter decision making at a local level and greater accountability.HSBC portrays itself as "the world's local bank," recognizing the importance of globalization, flexibility, and local responsiveness.
As of 1998, HSBC established distinct customer groups or lines of business that would overlay existing geographic designations.This encouraged maximizing the benefits of its universal scope, such as sharing best practices of product development, management, and marketing.The geographic perspective was melded closely with a customer group perspective, demanding both global and local thinking.
Traditionally, HSBC's culture has embraced caution, thrift, discipline, and risk avoidance.The bank looked at long-term survival and considered markets in 50-year views.Thrift manifested through the company, and even the chairman flew economy class on flights less than three hours.In 2005, incoming Chairman Stephen Green recognized the company's rule "to follow the letter and spirit of regulations" and signaled his intention to protect the bank's reputation as it extends into consumer finance.
Sir John Bond became CEO of HSBC in 1993, and chairman in 1998, bringing with him a hands-on entrepreneurial style and exceptionally ambitious goals.He pursued acquisitions beyond HSBC's traditional core, in pursuit of such attractive financial segments as wealth management, investment banking, online retail financing, and consumer finance.Bond considered shareholder value and economic profit in deciding when acquisition premiums were in order, which was in contrast to his predecessor's "three times book value" rule.By 2001, Bond had authorized investments of over $21 billion on acquisitions and new ventures.
In 1998, Bond adopted the HSBC brand, and preserved "The Hongkong Shanghai Banking Corp." name only for its bank based in Hong Kong.HSBC branded its subsidiary banks across the world with the parent bank's acronym and greatly expanded marketing efforts in 2000.In March 2002, HSBC's marketing message became "the world's local bank," which would help the brand become one of the world's top 50 most recognizable brands by 2003.
Household Acquisition
In 2003, a $15.5 billion acquisition of Household International, the U.S.consumer lending business, became the basis of HSBC's Consumer Finance customer group.Household utilized a unique system to forecast the likelihood that customers would repay debt, which used a 13-year database of consumer behavior.Household was controversial and yet presented great opportunity.HSBC desired to leverage this new skill in developing countries, yet was unable to find all demographic and credit data that Household normally relies on in the United States.HSBC particularly looked to extend the Household model into China and Mexico.However, the subprime mortgage crisis hit the United States hard in 2007-2008 and had a major impact on Household operations.
Six years after acquiring Household International, HSBC effectively conceded that the deal was a mistake.In March 2009 HSBC made public that it would close all 800 remaining branches of HSBC Finance Corp., the former Household Financial, resulting in 6,100 job cuts nationwide.HSBC had already closed about 600 HFC and Beneficial branches over the past two years."High levels of delinquency, given rising levels of unemployment, mean that the business model for subprime home equity refinancing is not sustainable," said Niall Booker, HSBC Finance chief executive during one of the media conferences.HSBC Finance said it would retain its credit card business, and HSBC Holdings would keep its New York- based HSBC Bank USA.HSBC officials also said that the bank would continue to help mortgage customers with loan repayments and foreclosure-prevention efforts.
The HSBC Finance (Household) executives pointed out that it was hard to predict in 2003 that global financial crisis and the recession would occur.When the crisis hit hard in 2008, the subprime mortgage market led to more than $1.15 trillion of credit losses and writedowns at financial institutions and government bailouts of companies ranging from Citigroup Inc.to Royal Bank of Scotland Group Plc of Edinburgh as noted by Bloomberg analysts.HSBC was one of the first banks to acknowledge the possibility of upcoming subprime mortgage problems, and set aside about $53 billion to cover bad loans during the past three years.
Economic Crisis and Financial Performance
The consequences of global economic crisis were severe for the world's banking system, prompting thousands of banks to seek financial assistance from their local government.Many banks were burdened with highly overvalued "bad loans" and suffered huge losses.Unlike many global players, HSBC reported a profit for 2008 but it still took a hit: Its pretax profit of $9.3 billion was 62 percent below the $24.2 billion reported for 2007.The bank also cut its dividend for the full year by 29 percent to 64 cents per share.The slide in profits was largely the result of a goodwill impairment charge of $10.6 billion in the United States.In spite of the bitter loss in North America, HSBC performed much better in the other parts of the world.For example, in Europe, pretax profit rose to $10.9 billion from $8.6 billion.Profit from Hong Kong fell to $5.46 billion from $7.34 billion, while earnings from the rest of Asia rose to $6.47 billion from $6.01 billion.HSBC is still considered one of the world's strongest banks by some measures.The bank's market value of $68.2 billion in early 2009 ranked it behind only Industrial Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd., and JPMorgan Chase Co.
To the credit of HSBC management, the bank avoided taking U.K.government "bailout" funding unlike other big banks.Instead, HSBC made plans to raise £12.5 billion ($17.9 billion) in capital to prepare for further deterioration of the global economy.Also, responding to growing public anger over the scale of bonuses paid to many senior bankers, HSBC said no performance share awards would be made for 2008 and that no executive director would receive a cash bonus.
Managing for Growth
HSBC's strategic plan, "Managing for Growth," was launched in the fall of 2003.This strategy builds on HSBC's global, international scope and seeks to grow by focusing on the key customer groups of personal financial services; consumer finance; commercial banking; corporate, investment banking, and markets; and private banking."Managing for Growth" is intended to be "evolutionary, not revolutionary," and aims to vault HSBC to the world's leading financial services company.HSBC seeks to grow earnings over the long term, using its peers as a benchmark.It also plans to invest in delivery platforms, technology, its people, and brand name to prop up the future value of HSBC's stock market rating and total shareholder return.HSBC retains its core values of communication, long-term focus, ethical relationships, teamwork, prudence, creativity, high standards, ambition, customer-focused marketing, and corporate social responsibility, all with an international outlook.
Strategic Pillars
As part of the growth strategy, HSBC identified eight strategic pillars:
Brand : continue to establish HSBC and its hexagon symbol as one of the top global brands for customer experience and corporate social responsibility.
Personal Financial Services: drive growth in key markets and through appropriate channels; emerging markets are essential markets with a burgeoning demand.
Consumer Finance : offer both a wider product range and penetrate new markets, such as the emerging country markets.
Commercial Banking : leverage HSBC's international reach through effective relationship management and improved product offerings.
Corporate, Investment Banking, and Markets : accelerate growth by enhancing capital markets and advisory capabilities.
Private Banking : a focus on serving the highest value
personal clients.
People : draw in, develop and motivate HSBC's people.
TSR : fulfill HSBC's TSR target by achieving strong competitive performances in earnings per share growth and efficiency.
Focus on Emerging Markets
In 2000, HSBC had half of its assets in developing countries.Most earnings, however, stemmed from mature markets, such as Hong Kong and Britain.All but 5 percent of group profits came from five economies, while India and Latin America each added only 1 percent to group profit.
In 2005 incoming Chairman Stephen Green underlined HSBC's focus on the potential of emerging markets: "There is a general rule of thumb that says the emerging markets grow faster than mature markets as economies and the financial services sector grows faster than the real economy in emerging markets because you are starting from very low penetration of financial services in general."
Specifically in consumer finance, Green recognized the importance of importing HSBC's model into markets starved for credit cards and loans, saying, "Any analysis of the demographics of emerging markets tells you that consumer finance is going to be an important part, and a rapidly growing part, of the financial-services spectrum for a long time to come."
The Draw of Emerging Markets
Recognition of the impact of emerging markets is an essential thread running throughout the elements of the "Managing for Growth" strategy.Since 2000, many of HSBC's emerging markets' profits have increased dramatically (see Exhibit 2).Across the board, HSBC's pretax profits in emerging markets have increased from $905 million in 2000 to $3,439 million in 2005.In January 2010, HSBC Global Asset Management reported that despite high volatility throughout 2009, Asian and emerging market equities gained around 100 percent.The Brazilian equity market was the best performer with a return of over 140 percent in 2009.In contrast, major markets such as the U.S., Europe, and Japan were all up between 39 and 82 percent for the same period.Meanwhile, HSBC Global Asset Management expects the pace of economic growth in global emerging markets to be faster than that of developed markets over the medium to long term.
Liberalization of China's Banking Sector
China's Banking Sector Pre-WTO
Before the WTO accession negotiations, China's banking industry operated as a cog in China's centrally planned economy.The state commercial banks performed a social function, during China's post-Mao drive to industrialize, instead of operating for economic return.Consequently, the banks adhered to directed lending practices from the government and in turn created some of China's most successful enterprises, but also supported thousands of other inefficient and unprofitable state-owned enterprises.This practice left state commercial banks with massive amounts of debt that were largely unrecoverable and hordes of nonperforming loans.
Exhibit 2 HSBC Emerging Markets

In addition to widespread losses, instability ensued in the banking system overall.To make matters worse, corruption and mismanagement ran rampant throughout the sector, sapping away consumer and investor confidence.
WTO Accession
Following 15 years of negotiation and two decades of economic reform in China, December 11, 2001, marked China's accession to the World Trade Organization.The main objective of the WTO agreement was to open China's market up to foreign competition.The deadline for complete implementation was December 11, 2006.
China made a number of implementations immediately.To begin with, foreign banks were allowed to conduct foreign currency business without any market access restrictions.Also, foreign banks were allowed to conduct local currency business with foreign-invested enterprises and foreign individuals (with geographic restrictions).Within two years of accession, China agreed to allow foreign banks to conduct domestic currency business with Chinese enterprises (geographic restrictions).Within five years, foreign banks could conduct domestic currency business with Chinese individuals (no geographic restrictions); and foreign banks were able to provide financial leasing services at the same time as Chinese banks.Under the WTO investment provisions, China agreed to allow foreign ownership of Chinese banks (up to 25 percent), with no single foreign investor permitted to own more than 20 percent.
"Bank reform has become the most crucial task for the government in pushing forward economic reforms," said Yi Xianrong, an economist at the Chinese Academy of Social Sciences in Beijing.Indeed, bank reform is critical to stabilizing and advancing the Chinese economy.
Domestic Reform
China has undertaken a number of domestic reforms in order to overhaul the banking industry.China has engaged in interest rate liberalization by removing certain interest rate and price controls.Instead of being pegged to the U.S.dollar, as it once was, China's currency exchange rate is now pegged to within 0.3 percent of a basket of currencies, dominated by a group including the U.S.dollar, euro, Japanese yen, South Korean won, British pound, Thai baht, and Russian ruble.The yuan was revalued by 2.1 percent against the dollar in July 2005, but analysts estimate that it remains 10-30 percent undervalued.
Regulation has long been a concern in the Chinese banking industry.China has made major progress by creating regulatory agencies.In 2003, China created a central regulator, the China Banking Regulatory Commission (CBRC), out of the central bank.The regulator's 20, 000 staff members endeavor to shift the banks' focus from senseless loans and grow mind-sets to a goal of preserving capital and generating returns.Lenders not meeting a capital ratio of 8 percent of risk-weighted assets (as decreed by Basel I, a global standard) by 2007 may face sanctions, which could include the removal of senior management.Still, the CBRC faces an uphill battle.Han Mingzhi, as head of the CBRC's international department, admitted in 2004 that "we lack people who understand commercial banking and microeconomics.It is a headache for the CBRC."
Concurrently, China is striving to make regulatory and reporting requirements more clear, because they have often proved confusing barriers to foreign investment.Since 1998, China has intensified accounting, prudential, and regulatory standards.Prior to 1998, the banks booked interest income for up to three years even if it was not being paid.Now, the banks can do so for only 90 days, which is the international norm.Still, it has been all too common for Chinese banks to ignore regulations and not monitor loans.As a result of poor accounting, the banks themselves are sometimes unsure of their bad loans.Lai Xiaomin, head of the CBRC's Beijing office, admits that "when our banks disclose information, they don't always do so in a totally honest manner." Indeed, the lack of reliable accounting can hamper investment.As one Hong Kong investor put it, "When you take a state-owned enterprise that has had weak internal controls, it can be enormously labor-intensive to come up with financials we can work with."
In 2006, regulators overhauled the system in which almost one-third of a company's shares were "nontradable." Fixing this problem has helped energize the market and welcome in individual investors.
Recent Regulatory Moves
New regulations, it is hoped, will address China's history of dishonesty and embezzlement.With the tight connection of Chinese banks with local governments, corruption has choked the Chinese banking system.Some common practices have historically encouraged corruption, such as allowing the same person to make and approve a loan.Former bank Chairman Zhang Enzhao himself was arrested in June 2005 for allegedly taking bribes.At the China Construction Bank alone, there were more than 100 cases of theft and embezzlement between 2002 and 2004.These old habits have to be rooted out.
China is working hard to transition its traditional banks into "universal" banks.Most of China's 128 commercial banks have introduced better governance, shareholding, and incentive structures, while also adding independent directors to their boards.Foreign management and knowledge are intended to flush the Chinese banking system with managerial talent.To help encourage foreign banks, China is relaxing some foreign bank restrictions.The Chinese government has also taken steps to eliminate bad loans by bailing out banks.
IPO Explosion
China has aggressively pursued IPOs of state-owned banks, a policy which has been met with a strong response from investors eager to tap into the populous country and seize first-mover advantages (see Exhibit 3).HSBC's purchase of a 19.9 percent stake in Bank of Communications (BoCOM) in June 2004 was the pioneering, substantial foreign bank investment in China.HSBC had previously made large investments in Fujian Asian Bank (50 percent) and Bank of Shanghai (8 percent).In 2005, foreign banks invested $18 billion in several of China's largest banks.The October 2005 listing of China Construction Bank (CCB), China's largest at the time, raised $8 billion from foreign investors for 12 percent of its shares.CCB further obtained an additional $4 billion ahead of its float by selling stakes of 9 percent to Bank of America and 5.1 percent to Temasek, Singapore's investment agency.In the following months, the Royal Bank of Scotland put $3.1 billion into Bank of China, Temasek another $3.1 billion, and Switzerland's UBS $500 million.
Exhibit 3 Foreign Bank Investments in China

HSBC Press Article, accessed October 3, 2006, www.hsbc.com.cn/cn/aboutus/press/content/03dec29a.htm.
Guonan Ma, "Sharing China's Bank Restructuring," China and World Economy 14, no.3 (2006), p.8.
David Lague and Donald Greenlees, "China's Troubled Banks Lure Investors," International Herald Tribune, www.iht.com/articles/2005/09/21/business/bank.php, accessed on October 4, 2006.
"UBS to Invest $500 million in Bank of China," CBS News, www.cbsnews.com/stories/2005/09/27/ap/business/mainD8CSHPLO0.shtml, assessed October 4, 2006.
Luo Jun and Xiao Yu, "Temasek to Buy 10% of China Bank," International Herald Tribune, www.iht.com/articles/2005/09/01/bloomberg/sxboc.php, accessed on October 4, 2006.
"Deutsche Bank Seals Chinese Deal," BBC News, news.bbc.co.uk/2/hi/business/4348560.stm, accessed October 4, 2006.
In May 2006, Bank of China, the country's secondlargest lender, raised $11.2 billion in a Hong Kong stock sale, which was the fifth-largest initial public offering in history.In July 2006, the Chinese government announced approval for an even larger IPO of the country's largest bank, Industrial Commercial Bank of China, to raise $18 billion or more in one of the largest stock offerings ever.The central bank expects foreigners to bring much needed improvements to the state banks' risk-management and internal control systems, including credit-risk assessment and more transparent reporting.With capital allocated more efficiently, a more stable financial system will follow, and the economy will become more open to foreign competition.
Two Steps Forward
Pulling back from some of its commitments, China indirectly delayed the implementation of its WTO commitments.On February 1, 2002, the People's Bank of China (PBOC) issued regulations and implementation rules governing foreign-funded banks.While these measures met the commitments of the WTO agreement, the PBOC was taking a very conservative approach in opening up the banking sector.For example, foreign-funded banks could open only one branch every 12 months.
In the wake of these early obstacles, there have been positive changes.Capital requirements were reduced, additional cities were opened up to foreign banking, and the "one branch every 12 months" restriction was lifted.Central bank officials have indicated willingness to eventually elevate the foreign ownership limit above the current 25 percent, but experts doubt it will ever go beyond 50 percent.
A 2006 study by McKinsey found that underperforming loans with merely negligible returns are also very damaging to the Chinese economy.McKinsey estimates that reforming China's financial system could boost GDP by $321 billion annually.
China's banking sector plays an excessive role in the overall financial system.The share of bank deposits in the financial system ranges from less than 20 percent in developed economies to around half in emerging markets.China, however, has a share of bank deposits at a sky-high 75 percent of the capital in the economy, which practically doubles any other Asian nation (see Exhibit 4).
Capital is still mostly allocated to state-owned enterprises even though private companies have been China's growth engine.Private companies produce 52 percent of GDP in China, but only account for 27 percent of outstanding loans.By sinking money into state-owned enterprises, China's banks are dragging the economy.China's banks had difficulty lending to private companies in the past, because of challenges related to gathering and processing the necessary information on them.As a response, China launched its first national credit bureau in early 2006.China's banks have been satisfying a social role, but now must allocate capital efficiently in order to generate positive economic return.
Exhibit 4 Financial Depth in Major Market

Source: McKinsey.
Investments in Ping An and BoCOM
With its longstanding presence in China, HSBC was among the best positioned financial institutions to take advantage of China's market opening.
Ping An Investments
In October of 2002, HSBC announced that it had taken a 10 percent stake in Ping An Insurance, China's second largest insurer, for $600 million.U.S.investment banks Goldman Sachs and Morgan Stanley already had a combined 14 percent stake in Ping An.Chairman Sir John Bond indicated that HSBC was particularly attracted to the long-term prospects in the insurance and asset management sectors.
In May 2005, HSBC indicated it was investing an additional HK$8.1 billion ($1.04 billion) for an additional 9.91 percent stake in Ping An, doubling its holding in the number-two life insurer.HSBC paid HK$13.20 a share for the stakes held by investment banks Goldman Sachs and Morgan Stanley, lifting HSBC's holding to 19.9 percent, the maximum stake allowed by a single foreign investor.
"This is good news for Ping An," said Kenneth Lee, an analyst at Daiwa Institute of Research."HSBC is buying at a premium and is replacing Goldman Sachs and Morgan Stanley, which are venture capital investors.HSBC is a long-term investor and will help Ping An to develop its insurance platform," he said.
The company's market share of more than 15 percent of the Chinese market puts it behind domestic competitor China Life Insurance Co., which underwrites about half of all Chinese life insurance premiums.In 2005, HSBC Chairman John Bond commented, "We are optimistic about the long-term prospects of the insurance industry in mainland China and believe Ping An is well-positioned to benefit from the sector's development."
In addition to holding a stake in Ping An Insurance, HSBC has applied for its own life insurance license in China.Foreign firms account for only 5 percent of the life insurance market in China, while three domestic firms (China Life Insurance, Ping An Insurance, and China Pacific Insurance) hold 76 percent of the market share.The bank hopes to start operations in 2008, and says it will maintain its relationship with Ping An.
The BoCOM Deal
HSBC invested $1.8 billion for a 19.9 percent stake in BoCOM in June 2004.HSBC's chairman at the time, Sir John Bond, commented on the company's long-term perspective: "[I]t is inevitable that China will become a superpower.And indeed, desirable.And we are positioning our business for the decades ahead accordingly." HSBC wanted a piece of the alluring Chinese market, which Goldman Sachs predicts will overtake the United States as the number-one economy in the world by 2040, and wanted to deepen its international scope in line with the "Managing for Growth" strategy.
Speaking one month after HSBC's big move, then-CEO and future Chairman Stephen Green expounded upon China: "[T]he potential in China's domestic market is the largest in history." China is