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Overseas banks profiting from China's reform and opening-up
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"We regard Shanghai and China as our home", Richard Yorke, Hong Kong and Shanghai Banking Corporation's (HSBC) China President and CEO, told Xinhua Thursday, talking about his bank's uninterrupted 144-year presence in China.

Since 1847 when the first branch of a foreign bank in China, the Bank of Western India, was founded in Shanghai, western countries including Britain, Russia, Germany, France, and the United States have launched financial institutions in China's business metropolis.

Branches of 27 overseas banks, including the HSBC and Standard Chartered, started operating in 1936 in Shanghai, then viewed not only as a financial hub but also a metropolis of adventure and mystery in the "Far East".

"There were so many banks around the Bund in Shanghai at that time, even more than rice stores," said the vice president of the Shanghai Bank Museum, Xu Baoming.

After the founding of the People's Republic of China, almost all the branches of overseas banks ceased operations on the Chinese mainland because of business limits, except for HSBC and Standard Chartered.

Asked why the HSBC persevered in China, Yorke said, "We've always felt very comfortable about the long-term development of our businesses here."

Since China's reform and opening-up drive in the late 1970s, more overseas banks have resumed operations on the mainland.

By the end of 1993, 76 financial institutions affiliated to foreign banks had been established in 13 Chinese cities.

"With the economic reforms, there have been greater opportunities for foreign and domestic banks to participate in growth," said Yorke.

"One of the many benefits of the reform, especially in the banking sector, has been to open it up to more competition."

"Because of the competition, the whole industry provides a better level of services to Chinese customers," Yorke said.

With China's entry into the World Trade Organization (WTO), foreign banks are allowed to cooperate with China's domestic banks more widely than ever. And, most importantly, they can offer RMB-denominated services to foreign consumers.

"It is an inevitable process the Chinese currency will become more internationalized and its importance, like China's importance, will only continue to grow", Yorke said.

In 2006, China pledged to open its banking sector to overseas banks, including full yuan services to individual, resident Chinese clients.

Chinese regulators approved the locally incorporation of Citigroup, HSBC Holdings, Standard Chartered and the Bank of East Asia on March 20, 2007.

"HSBC has been fortunate enough to participate in the opening up of the financial sector and benefitted from the strength and the growth of China's economy," said Yorke.

Key areas of profitability for domestic banks, such as mortgages and RMB bonds, are expected to be major arenas for Chinese lenders and overseas institutions.

HSBC and Standard Chartered have also expressed the desire to enter into mortgage business.

Standard Chartered is also applying to issue 3.5- billion yuan worth of RMB bonds in China's domestic banking market.

"Standard Chartered is facing a great opportunity in China because of the fast pace of the internationalization of RMB," said Katherine Tsang, CEO and executive director of Standard Chartered Bank (China) Limited.

The world's banking institutions were influenced to different extents by the credit crunch which led to the world economic downturn in 2008. But in Richard Yorke's eyes, Chinese banks did not bear the brunt.

"Looking at the performance of the large domestic banks in China during the current global economic downturn, one sees how well the whole process of financial reform and opening up has been managed by Chinese regulators," he said.

"China's domestic banks also benefited very much from reforms during the past few years."

When Yorke first came to Shanghai five years ago, he noticed a number of Chinese banks opened Sunday.

The first thing he said to staff of his company next morning was: "How can we compete on service if we are only open five days a week compared to competitors opening seven days a week?"

China "ended up with financial reform developing at a pace appropriate for the Chinese situation," Yorke said.

China's ever-developing banking industry also attracts overseas banks to shareholding in the domestic institutions.

HSBC holds a 19-percent stake of the Bank of Communications while the Hang Seng Bank holds a 12.78-percent stake in the Industrial Bank.

Besides the investment in China's banks, Hang Seng is also considering investing in insurance institutions, security companies and assets management companies, said Margaret Leung Ko May-yee, chairwoman and CEO of Hang Seng.

"Hang Seng's development in the next one or two decades must rely on the Chinese mainland's market," she said.

(Xinhua News Agency September 10, 2009)

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