HSBC buys into China mainland bank

HSBC Holdings has become the first foreign commercial bank to buy a stake in a mainland Chinese bank.

The UK-based bank, along with Honk Kong's Shanghai Commercial Bank, signed an agreement over the weekend to take an 11% stake in Bank of Shanghai.

HSBC was founded in Shanghai

HSBC paid 517m yuan (£43.22m; $62.6m) for an 8% stake while Shanghai commercial Bank paid 194.22m yuan for a 3% stake, Bank of Shanghai chairman Fu Jianhua said.

HSBC (Hong Kong and Shanghai Banking Corporation), which was itself founded in Shanghai in 1865 and is already the leading foreign bank in China, said the investment into a mainland bank was key to its investment strategy for the country.

"We believe our stake in the Bank of Shanghai will be complementary to our existing operations, with HSBC in Shanghai and the Bank of Shanghai focusing on different market segments," said HSBC chairman David Eldon.

World Trade rules

Foreign banks' operations in China are restricted by regulations preventing them from opening accounts for the country's 1.3 billion people or for Chinese firms, and limiting how fast they can open new branches.

These restrictions are due to be relaxed as part of China's adjustments to international trade regulations called for after it joined the World Trade Organisation.

"The Bank of Shanghai has a wealth of knowledge about China's domestic banking sector. In return, we offer the international reach and experience of the HSBC Group," said Mr Eldon.

Bank of Shanghai was founded in 1995 as a commercial bank owned primarily by the local government.

The bank has about 200 branches in the city of Shanghai.

It does not have permission to do business beyond the city limits.

The World Bank's private investment arm, International Finance Corp, holds a 5% stake in Bank of Shanghai and has plans to boost its stake to 7%.