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Foreign Banks See Potential in Small Companies

Foreign banks in China have seen small and medium-sized enterprises (SMEs) as a rising opportunity to take bigger slice of market in the country's financial sector.

HSBC Holdings, Europe's biggest bank by value, opened a wholly owned rural bank in western China's Chongqing recently that will offer a range of financial services, including deposits, lending and supply chain financing, to local rural enterprises and individuals, especially targeting SMEs.

In China, SMEs have long been neglected by big commercial banks due to their small size compared to powerful and resourceful state-owned counterparts.

In fact, SMEs play a significant role in the national economy. For many foreign banks, it has been an increasingly important strategy to win SME clients.

Affected by US sub-prime mortgage crisis, the global economic slowdown and decreasing market demands from overseas, many SMEs across the nation suffered operational difficulties since the beginning of this year.

Under the circumstances, small loans are definitely needed, which means opportunities for the lenders who have made big efforts to tap the business, said analysts.

Some research groups believe foreign banks' ambitions in the small business markets could help optimize China's financing structure.

"The loan business in China's SMEs is very promising. Foreign banks, which have accumulated wide experience in this sector, could not only satisfy the capital demands of SMEs but also meet their own development goals at the same time," said Du Xiaoshan, professor with the Chinese Academy of Social Sciences.

Guo Tianyong, professor with China University of Finance and Economics, said the foreign banks can make preparation for their future business expansion by focusing their interests in SMEs.

"The participation of foreign banks will strengthen the competition in this specific market and domestic commercial banks can learn from the experience of their foreign counterparts and launch innovative products for SMEs, which could ultimately clear the lasting bottleneck problem of SMEs getting loans," Guo said.

Foreign banks, including Standard Chartered Bank, HSBC, Citibank and Bank of East Asia, have eyed the growing SME market since the beginning of their entry into the Chinese mainland. They have launched diverse small loans services to smaller businesses in major cities.

Ben Shenglin, head of commercial banking at HSBC Bank (China), said early this year that the lender would introduce a range of new services targeting SMEs engaged in cross-border business in Yangtze River Delta and the Pearl River Delta areas.

"By leveraging HSBC's global network and trade expertise, we hope to help SMEs improve their efficiency and enhance their competitiveness in international markets," he said.

According to recent HSBC research, the Pearl River Delta and Yangtze River Delta regions are home to about 962,000 SMEs. More than 20 percent of these businesses engage in cross-border trading.

The research found that these SMEs are looking for trade financing, outbound remittances, lending, foreign currency account services and access to international banking networks to help them better manage cash flow and raise efficiency.

(China Daily September 22, 2008)

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