Regulatory ruling to stymie HSBC China expansion?

12 April 2007

HSBC's plans to expand in China have hit a hitch after its partner Bank of Communications (Bocom) was reclassified as a significant state-owned bank, according to a newspaper report.

The reclassification means that Bocom no longer meets the terms of legislation under which foreign investors are allowed to up their stakes in domestic banks, which is expected to be passed by the Chinese authorities in the future.

The change now means that regulatory authorities regard Bocom as one the banks which it deems as integral to retaining its control over the economy and therefore will not allow them to be controlled by others.

Mr Liu Mingkang, the chairman of the China Banking Regulatory Commission, told the Financial Times: "The big five banks account for 52 per cent of the Chinese banking market and any financial risks in these banks has a major impact on the overall stability of the economy."

HSBC currently holds a 19.9 per cent stake in Bocom for which it paid $1.75 billion, but a clause in the contract allows it to up its stake to 40 per cent should rules affected overseas investors be relaxed.

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