HSBC has decided to buy out its joint venture partner in China’s fund management business as the Asia-focused bank continues to grow in the second-largest economy in the world, according to a report by Reuters quoting information from sources.

According to the sources, HSBC and Shanxi Trust have signed a contract under which the Chinese state-owned firm will sell the bank its 51% investment in the joint venture. HSBC now holds a 49% stake in HSBC Jintrust Fund Management.

The sources, who asked to remain anonymous because they were not licenced to speak to the media, added that the transfer is still subject to a public auction of the shares as well as regulatory assessment and clearance.

If authorised, China’s $3.8 trillion fund management sector will see an increase in competition from Europe’s largest bank by assets, which generates the majority of its revenue and profit in Asia.

An HSBC representative in Hong Kong declined to respond. Requests for response from HSBC Jintrust and Shanxi Trust, both of which have their headquarters in Shanghai, were not immediately answered.

The amount that HSBC would pay Shanxi Trust in order to fully own HSBC Jintrust, which as of the end of March, according to the joint venture’s website, had $7.7 billion in funds under administration, was not immediately known.

The latest effort by the lender to increase its position in China is the increase in HSBC’s participation in the fund venture.

The bank, which has its London headquarters, increased its ownership of its China securities joint venture to 90% last year and transformed its China insurance joint venture into a wholly-owned subsidiary in 2021.

As part of an Asia pivot, HSBC has invested billions of dollars in China over the past few years, increasing its market share across the country’s $57 trillion financial sector in the banking, insurance, and securities industries.

About 44% of HSBC’s profit in 2022 came from China, including Hong Kong and the mainland.

A senior official informed HSBC Chief Executive Noel Quinn that China “welcomed an expansion of HSBC’s investment in the country” while he was in Beijing in March.

The bank has been battling a long-running drive from shareholder Ping An to separate its Asia business when it signed the agreement for the China fund business. A break-up proposal was rejected by HSBC at the annual shareholders meeting on Friday.

HSBC has joined a long list of international financial institutions that have increased their holdings in Chinese fund ventures in 2019 by taking advantage of the removal of a foreign ownership cap, including Manulife, JPMorgan, and Morgan Stanley.

According to the sources, HSBC Global Asset Management, the bank’s fund management subsidiary, is preparing an aggressive drive to secure regulatory clearance for the ownership shift to go into effect.

Before approaching the regulators, it must, according to the sources, cut or sell a majority position indirectly held through its subsidiary Hang Seng Bank in the 70%-controlled fund unit Hang Seng Qianhai Fund Management.

The “One Majority, One Minority” ownership principle, which prohibits both domestic and foreign companies from owning more than two fund units in China, applies to both.

(Adapted from Reuters.com)