The network effect

Trade friction between China and the United States has been a feature of the first four months of the year, with the threat of billions of dollars of tariffs hanging heavily in the air.

As tensions mounted further this week Donald Trump sent Treasury Secretary Steven Mnuchin out to China in a bid to take some of the heat out of the row.

But for a snapshot of what is happening away from the headlines, WiC talked to a trio of HSBC executives tasked with nurturing trade and investment between China and the rest of the world.

Each of them works on one of the bank’s ‘China Desks’, which were officially launched six years ago, and now extend to 25 positions covering more than 40 markets. The two newest desks in Poland and Israel were launched this year.

WiC interviewed Victor Wang, Patrick Bi Yi and Ping Huang – three of the longest serving China Desk Managers, based in London, Singapore and Riyadh, respectively – for more on what they do and what they are seeing from their Chinese clients.

So who are the typical Chinese companies that you work with?

Wang: HSBC is involved in nearly 100 Belt and Road-related projects

Victor Wang: My main role in London is to facilitate ‘outbound’ trade and investment from Chinese companies into Europe.

Most of the China Desk Managers have previous experience of doing business in China and that knowledge can be helpful to Western companies in our markets. But our primary mandate is to help our Chinese clients. We support a wide spectrum of companies ranging from a couple of million dollars to tens of billions of dollars. We can help with anything they need to make their businesses work– from M&A advisory through to more basic services like account opening.

Bi Yi: helped finance a section of the Kunming-Singapore Rail Link

Patrick Bi Yi: My Chinese clients in Singapore range from large companies with $5 billion in sales revenues down to SMEs with much lower sales figures. Our typical clients have revenues of hundreds of millions of dollars, although relatively few of them are focused purely on the Singapore market. Probably about 70% of my client portfolio also has an ASEAN focus and the remainder has a global remit, often acting as international invoicing centres or trading arms.

In Singapore we are more concentrated on conventional trade facilities that support import-export activity.

Additionally, bond issuance has picked up over the last year and a half. The Singapore exchange has introduced an Asian bond scheme that allows qualified clients to get rebates on issuance fees, so we have been introducing companies to that.

Also, the cost of funding in Singapore tends to be cheaper than other countries in the region so it has become an offshore lending centre. We help Chinese clients with loans in US dollars or offshore renminbi, which are then repatriated back to China

Huang: trade settled with renminbi in Saudi doubled in first quarter

Ping Huang: The business flow in the Saudi market is two-way. In terms of overall figures, there has been about $8 billion of investment by Saudi corporates into China, and about $4 billion of investment from the Chinese into Saudi Arabia. But if we talk about the number of projects, the story is reversed: about 20 from Saudi corporates in China, but more than 200 by Chinese companies in Saudi.

In the last 18 months, HSBC has helped Chinese corporates to win business across more than $4.4 billion of construction projects for power plants, for example. This kind of work starts out with tender bonds that support the bids. If the client wins the project, it often needs further support in areas such as performance bonds and advanced payment bonds. After that, it’s services like working capital and invoice finance.

Some of these firms have 10,000 staff working on their projects, so we do the payroll services and personal account opening as well. So it’s almost everything!

Are state-owned enterprises your most common clients?

Huang: Much of our focus in Saudi Arabia is on SOEs [state-owned enterprise] clients because the larger projects based around oil and chemicals usually involve state-owned firms. Plus the Saudi population is quite young, with more than half younger than 30, which means there is a lot of demand for infrastructure such as housing, education, healthcare and transport. Again, these are sectors where SOEs are more dominant in building the power plants, the railways and the housing.

Bi: My client base in Singapore is probably a 50/50 split between state-owned enterprises and others. Singapore serves as a commodity hub, so commodity-focused SOEs set up their regional treasury centres and trading arms there.

But it also has a strong reputation as a private banking hub, which interests high net worth individuals and financial services firms, and it offers a manufacturing base, which attracts ICT companies, and oil and chemicals firms.

Wang: HSBC’s client base in Europe is quite diversified. But in general, there’s more focus on infrastructure companies in central and eastern Europe, while tech firms, and oil and gas businesses, tend to feature more in western Europe.

We have also worked with some of the largest chemical firms and HSBC acted as lead financial adviser to ChemChina on its offer for Syngenta, the world leader in crop protection, in a bid valued at over $46 billion last year. The deal was the largest overseas acquisition by a Chinese company, and HSBC also assisted in the acquisition financing.

Don’t most of these companies already have relationships with mainland Chinese banks?

Bi: Yes, they often do. But from the perspective of the Singapore market, I’d say HSBC is more localised than its competitors. We understand the culture and we offer a fuller suite of tailor-made products. Some of the newer banks that have arrived more recently in the market can’t match the range or scale of our services or the many years of experience.

Wang: What makes HSBC different is its capacity to connect customers across different markets. Because HSBC is a global bank, we know our customers in China but can also introduce them to opportunities in other markets. That’s what our clients find so valuable.

How about the local awareness of Chinese companies in the markets you work in? Is it improving?

Huang: Connections between Saudi Arabia and China are growing all the time, and there is improved awareness of Chinese goods and services at all kinds of levels.

As a basic example, in the Saudi market a lot of the residential construction is the building of villas, and I have noticed that flights between Riyadh to Guangzhou are now busy with Saudi homeowners and wholesale players heading to Guangdong to buy tailor-made kitchens and bathrooms for their new properties. These furniture and fittings packages are being purchased from manufacturers in the Pearl River Delta (some of them are HSBC’s commercial clients) and then shipped by container back to the Middle East.

Bi: Like many other countries, there are brands in Singapore that are recognised as Chinese by local consumers, such as Xiaomi or Oppo in smartphones, or DJI [the drone maker], which is also increasingly well known.

But sometimes it’s the case that the Chinese have acquired local brands that are well established in their home markets and consumers may not realise that they are under Chinese ownership. There’s a luxury hotel in Singapore that’s owned by one of the Chinese conglomerates, for example, and HSBC works with a 50 year-old construction firm from Singapore that’s winning Belt and Road business, but which has also been acquired by a Chinese firm.

Wang: Certainly, European businesses are becoming more aware of Chinese companies as potential partners or investors. Perhaps some of the awareness isn’t quite as advanced with consumers. I don’t know, you’d have to ask them. But obviously, there’s still strong interest from Chinese firms in buying into the consumer space in Europe. There are plenty of cases – the Pizza Express restaurant chain has a Chinese owner [Hony Capital] and so does the holiday brand Club Med [Fosun Group].

The Belt and Road Initiative (BRI) was just mentioned: is it a major driver for client activity?

Bi: In many cases the Belt and Road business that we are supporting isn’t entirely new to HSBC. It’s fair to say that it is more focused on infrastructure than other sectors but we’ve been working with some of the same clients for years, and described it more in terms of China’s ‘Going Out’ policy.

However, Singapore definitely has a role as a financing centre for Belt and Road projects and there are a number of multinationals, Singaporean companies and Singapore-based subsidiaries of Chinese companies working with the main contractors on BRI projects in the region.

It’s not just the large corporates that are active in this kind of railway, port and airport construction – there’s an ecosystem of smaller and medium-sized companies involved as well.

As an example of one project: HSBC was the principal bank for the $2 billion Gemas-Johor Bahru Double-Tracking Rail Project, which is part of the Kunming-Singapore Rail Link. We provided comprehensive trade finance, cash management and foreign exchange services.

A memorandum of understanding was signed in April between the governments of Singapore and China to promote further collaboration in so-called ‘third party markets’, based on Singapore’s role as a regional centre in ASEAN. Here, HSBC is well positioned to assist with financing for projects in markets like Indonesia, Thailand and Malaysia. In turn, that brings us new opportunities to work with the same clients in areas like treasury and cash management.

Huang: The Chinese and the Saudis also signed a strategic partnership on investment, after President Xi Jinping made a state visit to Saudi Arabia in 2016. King Salman made a return visit to China the following year and a series of MOUs have been signed on deals to a value of about $65 billion.

The Saudis have their own plan for infrastructure investment called Saudi Vision 2030, and where this programme meets the BRI, the opportunities will be huge.

Wang: HSBC has a presence in about half of the markets related to the Belt and Road Initiative and the bank is involved in nearly 100 projects connected with it. However, in Europe the perspective is a little different to markets in Asia and the Middle East. People think more of Belt and Road as a path or trade corridor from China to Europe, with countries like the UK at the far end of the corridor. So probably unsurprisingly, we are seeing less investment activity in Europe so far than some of the other countries.

How about renminbi internationalisation? Hasn’t it been slowing down?

Huang: Momentum has been picking up again in Saudi Arabia and trade settled with the renminbi almost doubled in the first quarter, compared to the same period in 2017.

There’s also speculation that more of the region’s oil sales could be settled with yuan. It hasn’t happened yet but the press has been talking about it, including oil futures priced in renminbi from Shanghai.

Bi: The renminbi is already widely used as a trade currency in Singapore for imports and exports. Our Chinese clients are active users of the renminbi and as I mentioned, HSBC has been helping some of them with local loans denominated in CNH [offshore renminbi). These loans have been quite popular as the rates have been competitive, especially over the last six months.

Wang: Renminbi activity in London is smaller than in Singapore and Hong Kong. All the same, the City of London has a working group that encourages greater usage of the yuan, and there are expectations that the London and Shanghai bourses could soon be linked by a new version of the Stock Connect scheme.

Talk of trade conflict is making headlines, but what’s your sense of the underlying sentiment towards Chinese businesses in your markets?

Huang: My main observation is that Chinese corporates are generally seen as professional and committed in the Middle East, especially in sectors like telecommunications, railways and power plant construction.

More broadly, the local people see the Chinese as intelligent and hard working – they definitely have a reputation for getting things done.

Bi: It’s similar in Singapore, where Chinese firms are seen as competitive and regarded as fast-learners. Most of them have strong support from their home bases in China and the newcomers to Singapore have established their reputations quickly, often over couple of years. Investment from China is generally welcomed in Singapore, too.

Wang: The message from the UK, Europe and China should be that they are all open for business. Of course, there are sometimes differences in culture or outlook.

But that’s the point of the China Desks at HSBC – our role is to bridge any gaps and support our customers on their financial needs to make the outbound business easier for them.

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