HSBC bets big on tailor-made products for Chinese companies planning overseas ventures in Europe

HSBC Corp, Europe's largest bank by market value, plans to offer more personalized solutions for Chinese companies planning overseas ventures, as part of its efforts to diversify revenue streams to push growth.

The global banking giant has already made a beginning in this regard by implementing a yuan cross-border trade settlement solution for a Chinese Fortune 500 company last month. It has also set up 17 dedicated China desks around the world to provide information on the local business and regulatory environments to the subsidiaries of Chinese companies planning overseas ventures.

"We want to be there whenever a company goes overseas," says Oliver Jones, head of HSBC UK's international team for corporate and commercial banking. Jones also supervises HSBC's UK China desk in corporate banking, headed by Neo Wang.

"Our China team is already in touch with several Chinese companies. Through the speedy transfer of knowledge across the HSBC network, we can ensure that our overseas China desks have the necessary background information to provide speedy and on-the-ground services for Chinese clients," Jones says.

Citing an example, he says that prior knowledge about a Chinese company's back office systems and internal policy toward foreign exchange hedging often comes in handy for the overseas subsidiaries, when they have to take speedy investment decisions.

He says that though HSBC UK has dedicated desks to help investors from markets such as the US, Canada, France, Germany, Australia and India, it is the China desk that is becoming increasingly important as Chinese investment in the UK is steadily growing.

Cross-border lending is still a challenging task for most of the global lenders as the inflow and outflow of yuan is regulated by the State Administration of Foreign Exchange, China's foreign exchange regulator, Jones says.

Despite these challenges, Jones' team recently worked with HSBC China to set up a cross-border lending structure for a Shenzhen-based manufacturer. "Our efforts helped facilitate the smooth flow of funds to the UK subsidiary from the cash-flush parent in China."

HSBC secured a standby letter of credit in renminbi for the funds in China and later helped set up a revolving credit facility of more than $10 million (7.7 million euros) in the UK for the Chinese company, he says.

Cross-border lending through standby letter of credit became first possible in 2009, after the Chinese government started a pilot program to encourage the renminbi's internationalization. Before this policy change, Chinese companies wanting to invest overseas had to transfer the cash physically out of China to their overseas subsidiaries. In comparison, lending through standby letter of credit allows the parent company to keep the cash within China.

Jones says cross-border lending is often used in situations where the subsidiary needs the cash for operational purposes over a period, rather than using it for a one-off investment.

He says the HSBC deal was the first renminbi standby letter-of-credit-backed revolving facility in the UK, and his team is now working on several other such deals for Chinese clients, involving several millions of dollars.

Jones says his team was fortunate to have an opportunity to learn from the HSBC Hong Kong team on how to structure renminbi standby letter-of-credit deals. His team had its own experience while adjusting the pricing of the deal to suit UK contexts because the cost of capital and the way securities are viewed in the UK are different.

The renminbi deal, however, is just one example that demonstrates how the bank plans to provide several "seamless services" to Chinese clients across different jurisdictions, says Christopher Davies, deputy CEO at HSBC China.

HSBC China is taking several steps to encourage its clients to use the renminbi for both trade and investment overseas, as China is gradually relaxing the controls on renminbi, he says.

China's push to internationalize its currency started in 2008, when the global financial crisis showed the danger of over-reliance on the US dollar. Since then, Beijing has begun to encourage the use of its currency in international trade, swap arrangements among central banks, and bank deposits and bond issuances in Hong Kong.

Trade in offshore renminbi has since boomed. Increasing Chinese exports have also led to a surge in demand for renminbi outside China as Chinese exporters increasingly expect to be paid in their own currency to eliminate exchange risks.

In an HSBC survey of 1,300 companies in 18 Chinese cities in 2011, 78 percent of the respondents who had not yet started using renminbi to settle cross-border trade had plans to do so.

To keep clients informed of the latest regulatory changes, Davies' team produces research reports regularly and sends them to clients. His team also hosts regular road shows and client meetings to explain recent developments.

"This is moving beyond being a new topic, especially for the more sophisticated customers. It's important for us to be topical," Davies says.

In recent years, HSBC has pioneered the development of some renminbi products and services internationally. For example, HSBC issued the first renminbi bond in London in April, and HSBC Hong Kong carried out a renminbi repo with UBS AG in London in December last year.

But at the same time, HSBC is also facing strong competition from many Chinese banks increasingly expanding into Europe, as well as European banks hoping to attract Chinese investment.

One example is the Royal Bank of Scotland, which established a dedicated China desk in London last year, to assist Chinese companies wishing to expand internationally as well as helping UK and European companies do more business with China.

Janet Ming, who heads the bank's China desk, told Euromoney last year that RBS offers customers a variety of services including cash management, transaction banking, foreign exchange and fixed income.

Meanwhile, many Chinese banks are also expanding overseas, often to serve their existing customers who are expanding abroad.

In London, the earliest Chinese bank was the Bank of China, which opened an agency office in 1929, which was upgraded into a branch in 1946. China Construction Bank opened a subsidiary in London in 2009. Last December, it became the first Chinese bank to issue a renminbi-denominated bond in London, raising 2 billion yuan (25 million euros).

In 2012, Agricultural Bank of China opened a subsidiary in London, and China Merchants Bank set up a representative office in 2009. The Industrial and Commercial Bank of China set up a representative office in London in 1995, which was later upgraded to a subsidiary.

"Our strategy is to let our customers see us as a local bank, instead of being a Chinese one," Xu Jinlei, former general manager of ICBC London told China Daily in a recent interview.

Davies says HSBC is also up to the challenge. "The advantage of HSBC is that our resources are distributed around the world evenly rather than having one central hub, so we can pull resources together seamlessly to help clients."

Contact the writers through cecily.liu@chinadaily.com.cn

(China Daily 05/17/2013 page16)