HSBC in talks to become China's biggest foreign bank group

HSBC, Britain's largest bank, is aiming to become the largest foreign player in China's emerging banking market by holding discussions with the country's fifth largest lender about taking a stake in its business.

HSBC, Britain's largest bank, is aiming to become the largest foreign player in China's emerging banking market by holding discussions with the country's fifth largest lender about taking a stake in its business.

Sources at Bank of Communications, based in Shanghai, said yesterday that the lender had held talks with several foreign banks, including HSBC.

The Chinese bank, which had assets of renminbi 858.37bn (£57.6bn) at the end of 2003, said in March it was seeking foreign investors to take a stake in its business before an initial public offering.

The size or value of the stake under discussion is not known. By law, foreign institutions can acquire up to a total of 25 per cent in Chinese banks, with each suitor limited to a maximum of 20 per cent each. Officials said the People's Bank of China, the central bank, had approved Bank of Communications' search for a foreign partner.

HSBC has a foothold in China with an 8 per cent holding in the Bank of Shanghai and a 10 per cent stake in the life assurerPing An, taken in 2002 for $600m.

Dicky Yip, HSBC's China chief executive, said this year that the bank was interested in making a large acquisition in the country. In December, Hang Seng Bank, an HSBC subsidiary, paid $208m for 16 per cent of Industrial Bank, a much smaller lender than Bank of Communications.

A string of international banks are limbering up for the race to snap up a share of China's $1.3 trillion savings pool. But there are many restrictions on foreign companies getting a grip on its incipient financial services industry. For instance, foreign banks can open only one new branch a year.