HSBC Holdings - the world's number three bank by market value - expects half its profits from China to come from its organic business within five years, an executive said yesterday.
HSBC posted record interim earnings on Monday, with a 29 per cent jump in first-half pre-tax profit from Asia-Pacific excluding Hong Kong, driven by strong growth in China and India.
China contributed $280 million (£150.5 million), or 2.2 per cent of group pre-tax profit, up from 1.5 per cent a year ago, thanks to HSBC's investments in Bank of Communications and Ping An Insurance (Group).
HSBC already has the biggest foreign footprint in China, yet, Michael Smith, chief executive of Hongkong and Shanghai Banking Corporation, HSBC's Asia arm, aims to keep building on its existing franchise of 33 mainland outlets.
But catching up with the contributions from Bank of Communications and Ping An will be no easy task.
Analysts expect those investments to account for more than $630 million (£338.7 million) in profit this year, while HSBC's China branch network earned $52 million (£27.9 million) profit in the first half.
"It is a place we need to continue to invest in and continue to build," Mr Smith said late on Monday, noting the bank's two-pronged China approach is to grow its own business while working with its partners. While branch profits rose eight per cent in January-June, their contribution to total Chinese profit fell to less than one-fifth from 30 per cent a year earlier.
"An eventual ratio I'd like to see is 50 per cent in five years time," Mr Smith said.
To achieve that goal, HSBC is poised to set up more joint ventures on the mainland when policies allow, pursuing opportunities in the brokerage and insurance sectors.
Mr Smith, who has overseen mainland branch staff growth of 46 per cent over the past year to 2,178 employees, also hopes HSBC's credit card partnership with Bank of Communications will be granted joint venture status by the end of the year.
Beijing will fully open its banking sector to foreign competition in December to comply with WTO obligations, a move that will let overseas lenders offer yuan currency services to mainland Chinese. While Asian growth has caught the market's attention, HSBC's commercial banking business has also begun to live up to its potential after the bank reviewed the business last year. Its pre-tax profit rose by more than a fifth to account for 23 per cent of group pre-tax profit.
"We are probably the largest international commercial bank in the world. But we haven't joined it up. We haven't got the regions and the countries working together properly," said Mr Smith, who also heads HSBC's commercial banking business.