Potential Strategies for Hsbc's Entry into China's Rural Banking Sector

1. Introduction

Compared to the deterioration of America and Europe economic situation due to the financial crisis in 2008, China's domestic demand has grown dramatically in recent times. China has replaced Japan as the secondary largest economy so multinational companies are fighting to enter China's market to obtain the dominant position. According to Yung (2011), in retail banking, foreign lenders are optimistic about China since the investment industry of Chinese market has remained open for them. Furthermore, farming is the main industry of China, with a vast rural population, but most foreign lenders focus on the big cities of China, ignoring the rural provinces. This could be the next emerging and developing financial markets. Indeed, HSBC, who has the biggest branch network and 162 outlets on the mainland, was the first multinational bank to take part in China's rural monetary innovation in 2007 (The Economist, 2011). It has already gone ahead to expand rural banking network in China. Although even the Chinese rural financial market apparently shows great potential, there are still many challenges. Providing tailored financial products to satisfy the demands of China's rural areas is the solution to these challenges. This project will first demonstrate the problems in HSBC's entering the provinces of China. It will then determine which strategies could meet these needs in rural districts. The last part of the paper will evaluate which strategies could be an optimum response.

2. Foreign banks' investment opportunities in rural China

In order to resolve the unemployment of 20 million migrant laborers who are from remote districts, the Chinese authorities urgently need more funds to build rural villages to stimulate these areas' economic growth. Therefore, the Chinese government intends to extend the amount of provincial banks over ten times to 1,027 by 2011 (Kwok, 2009). In addition, according to Dowling (2010), because China's state has searched to increase the domestic expenditure and lower dependence on exports for economic growth, it has established a succession of rural financial programs in recent times to build public works and industrial investment of underdeveloped regions. Apart from all of the above, some analysts conclude that, multinational banks could be targeting at remote areas since it was difficult for them to vie with China's domestic banks in urban (Xinhua News Agency, 2009). As a result, foreign banks could focus toward on Chinese rural market that national banks had principally forsaken.

3.Existing Problems for HSBC in China

3.1 Limitations in farming lending

As Qiang, et al. (2009) claim, under communist laws, people do not have land-ownership because