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31 May 2011

Hong Kong, The Roles of RMB Internationalisation

Citi HK Financial mini-Conference

Mark McCombe Chief Executive Officer Hong Kong The Hongkong and Shanghai Banking Corporation Limited

Forward-looking statements

This presentation and subsequent discussion may contain certain forward-looking statements with respect to the financial condition, results of operations and business of the Group. These forward-looking statements represent the Group's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our Annual Report and Accounts 2010. Past performance cannot be relied on as a guide to future performance. This presentation contains non-GAAP financial information. Reconciliation of non-GAAP financial information to the most directly comparable measures under GAAP are provided in the `Reconciliations of reported and underlying profit before tax' supplement available at www.hsbc.com.

1

RMB to be the third largest international currency

2

Rise of Greater China

Significant economic benefits for Hong Kong

People China has over 9mn mass affluent, growing at 13% CAGR. 825k individuals with wealth over RMB10mn4 Spending power spilled over to HK ­ In 2010, 22.7mn Mainland tourists to HK and 16.1mn to Macau 6 ­ accounted for 30% of luxury retail sales1 Trade China is the largest exporting country ­ USD1.5tn total exports in 20103 ­ Will surge to around USD2.4tn in 20204 Robust HK/China trade ­ 53% exports/44% imports of HK to/from China5

China GDP

USD 5.7tn GDP in 2010, 2nd largest in the world 8 Capital China engages in active foreign asset acquisition and continued domestic infrastructure spending Strong capital flow between China and HK ­ 45% of overseas projects in China are HK related2 ­ 592 Mainland companies listed in HK7

1. Business Week. Dated April 2010. 6. 2. World Trade Organization 7. 3. Ministry of Commerce, PRC 8. 4. HSBC estimates 5. Census and Statistics Department, Hong Kong SAR Tourism Commission, Hong Kong SAR; China Tourism Academy HKEx Fact Book, 2010 CIA - The World's Factbook

Currency Targeting full convertibility Reserve currency? RMB internationalisation

3

China is now the 2nd largest economy and largest exporting country

(USDtn)

16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0

Gross Domestic Product 2010 2

14.6

5.7

5.4 3.3 2.6

2.0

(USDtn)

Total Exports 2010 1

1.5

US China Japan Germany France

1.6 1.2

1.3

1.3 0.7

0.8 0.4

0.0 China

Source: 1. IMF / CIA ­ The World's Factbook 2. CIA ­ The World's Factbook

Germany

US

Japan

4

RMB could become the 3rd highest turnover currency in the world if RMB is fully convertible

Daily Avg Turnover (USDbn) 3500 3000 2500 2000 1500 1000 500 0

2010 BIS Data

Daily Avg Turnover (USDbn) 3000 2500 2000

USD

USD

EUR

1500

EUR

RMB

GBP

YEN

1000 500 0

GBP

YEN

RMB

HSBC estimate (if RMB fully convertible)

Note: Estimate of RMB daily average FX turnover is based on a turnover-to-trade ratio of 0.3, which is lower than 0.32 for EUR, 0.4 for YEN and 0.46 for GBP. The rise in use of RMB will offset the use of USD, EUR, YEN and GBP at a share of 40%, 30%, 20% and 10%.

Source: HSBC estimate

5

RMB internationalisation

Rapid development

Trading Currency

Investment Currency

Reserve Currency

HSBC forecast

2004

· Personal RMB business

2007

· RMB bonds

2009

2010

2011

2020

· Enlarged trade pilot · Overseas Direct · RMB trade · Fully convertible ??? settlement pilot scheme Investment in RMB scheme · RMB wealth management products · Access to Mainland's bond market · Case approval of RMB FDI

Source: HSBC

6

HK the launch pad for China companies "Going Out"

China's ODI continues to grow 1

60

USDbn

40

2010 Non-financial ODI: USD59bn

China is no longer only a FDI destination. It is now the 5th largest ODI origin 2 HK is PRC's largest ODI destination1 56% of new company accounts opened in Hong Kong are customers from China 3

20

0 2006 2007 2008 2009 2010

China is now the 5th largest ODI origin 2

USDbn

300

Growth in SOE/POEs using the liquidity in the Hong Kong system HKD AD ratio: 78.1% 4 Non-bank China exposure: 12~13% HK banks' assets 4

200

100

0 USA France Japan Germany China

1. 2009 Statistical bulletin of China's outward foreign direct investment 2. National Bureau of Statistics of China 3. HSBC figure 4. HKMA statistics

7

RMB Trade Settlement to reach USD 2 tn by 2015

Full liberalisation by 2020

57% of Hong Kong traders would use RMB for trade settlement in the coming 6 months. 2 RMB is expected to be the third most popular currency for trade settlement. 2

More than USD 2 trillion or half of China's total trade flows with emerging markets will be settled in RMB by 2013 to 2015 1

RMB to become a fully liberalised currency by 2020.1

2010 | 2011 |

1. HSBC in-house estimates 2. HSBC Trade Confidence Index ­ MAY 2011

2015|

2020|

8

HK's RMB deposits to reach RMB 800bn by end 2011

Or 11% of Hong Kong's deposits

RMB bn

1,200 1,000 800 600 400 200 0

Strong

RMB deposit pool

1Q2011 end: RMB 451bn or 5% of total HK deposits base

Base

RMB800bn to RMB1.2tn by end of 2011

Weak

Dec07

Source: CEIC, HSBC

Dec08

Dec09

Dec10

Dec11e

9

Expanding leadership in Hong Kong

10

Sustained leadership through the economic cycle

HSBC position Leading player with # 1 market shares HSBC only1 Deposits (Dec 10) Mortgages 2 (Dec 10) HKD Bonds (Dec 10) 25% 19% 34% Hong Kong 34% 34% 34%

Key actions Continue to invest to maintain leadership1 Top advertising spend (15% of industry) with # 1 in Brand Health USD1.4bn IT and delivery channel spend over past three years Build new leadership segments1 # 1 in life insurance new business 18.1% and Mandatory Provident Fund 24.8% market share Building ECM capability. "Best Equity House" 2010 by Finance Asia Continue advances and deposits growth

USDbn, Reported

Ability to generate profits through the economic downturn

Hong Kong PBT USDbn, Reported

5.5

5.0

5.7

2008 251 100 40%

2009 275 99 36%

2010 297 141 47%

CAGR (08-10) 9% 19%

Deposits 2008 2009 2010 Advances A/D ratio

1 HSBC excluding Hang Seng Bank, 2 mReferral data

11

Ideally positioned to capture cross-border opportunities

Chinese diaspora: a major source of new customers1 Premier Total new accounts 2010 Business Total new accounts 2010 Chinese diaspora Others

Key actions3

Leveraging on cross-border connectivity to capture commercial clients

35% of new locally incorporated companies in HK bank with HSBC Commercial Banking referrals ­ HK to mainland: +25%; ­ mainland to HK: +70%

23% 56% 77%

Chinese diaspora key behaviours

44%

Strengthening sales force to capture retail clients

Higher Value

Higher take up of wealth management products Bigger transaction value

Recruited 1,500 frontline staff (70% Mandarin speaking) 112% YoY growth in new Chinese diaspora Premier accounts2 Premier referrals ­ HK to mainland: +332%; ­ Mainland to HK: +150%

12

More use of direct channel Lower cost Tend to use one bank only

1 Companies Registry, HKSAR / HSBC in-house figures, all excluding Hang Seng Bank 2 FY 2010 3 HSBC excluding Hang Seng Bank

HSBC - The leading international RMB Bank

Hong Kong RMB deposits vs. RMB trade settlement1

RMBbn, cumulative

RMB bn 451 371 315 681

Key actions Leveraging on first mover advantage

Joint-Listing Agent on HK's first RMB IPO First RMB structured deposits. Launched RMB insurance, RMB Bond Fund Pioneered Offshore RMB (CNH) Bond Index

58 0.1 Sep-09 1.9

63 6.0

71

90 29

107

149

Mar-11

Dec-09 Mar-10 Jun-10 Total RMB trade settlement value

Sep-10 Dec-10 HK RMB deposits

CNH Bond new issuance

RMBbn

forecast3

Capitalising on international connectivity to further increase market share2 HK's RMB deposits estimated to rise threefold in 2011 RMB bond issuance: #1 Rank YTD 2011. Issuance includes World Bank, Unilever, etc. RMB trade services in 45 markets on all 6 continents, settlement volume reaches RMB45bn FY2010

13

80

60

40

20

0

2007 2008 Gross issuance

2009

2010 Net issuance

2011f

2012f 2013f Redemption

1 HKMA; 2 HSBC in-house figures (exclude Hang Seng Bank) 3 Bloomberg

HSBC is playing a leading role in developing offshore RMB business

Product capability

· First-mover · Provider of Choice

Distribution channel

· Convenience · Replicating overseas

Global platform

· Connectivity · Building Awareness

14

HSBC leading in Offshore RMB bond issuance1

Q1 2011 offshore RMB bonds issued 2

Pricing Date 31-Mar-11 29-Mar-11 25-Mar-11 24-Mar-11 21-Mar-11 15-Mar-11 14-Mar-11 10-Mar-11 9-Mar-11 8-Mar-11 1-Mar-11 28-Feb-11 21-Feb-11 20-Feb-11 18-Feb-11 15-Feb-11 16-Feb-11 14-Feb-11 28-Jan-11 28-Jan-11 27-Jan-11 25-Jan-11 25-Jan-11 25-Jan-11 25-Jan-11 19-Jan-11 13-Jan-11 13-Jan-11 11-Jan-11 7-Jan-11 4-Jan-11 3-Jan-11 Issuer Towngas China Wind Power Unilever NV Bank of Communications OCBC Orix Corp TPV Morgan Stanley UBS AG Jersey Branch Powerlong Real Estate Barclays Bank PLC HK Bank of Communications Road King Infratructure ICBC (Asia) LDK Solar Co Ltd UBS AG Jersey Branch Svenska BECL Investment HLDG ICBC (Macau) ICBC (Macau) YFY Cayman IFC PCD Store HSBC Bank Plc Morgan Stanley Shui On Land Evergrande Evergrande Sinochem Hong Kong China SCE Property Holdings World Bank Bank of Communications Issuer Rating Moody's S&P A1 A+ A1 A+ A3 BBB+ Aa1 A+ AA2 A Aa3 A+ B1* B+ * Aa3 A3 BBB+ Ba3 * BB- * A2 AAa3 A+ Aa2 AAA3 A3 Aaa AAA Aa2 AA A2 A B2 BBB2 BBBaa1 BBB+ B2 B Aaa AAA A3 BBB+ Format Tenor Sr. Unsec. 5yr Sr. Unsec. 3yr Sr. Unsec. 3yr Cert. of Depo. 3yr Cert. of Depo. 3yr Sr. Unsec. 3yr Sr. Unsec. 3yr Sr. Unsec. 5yr Sr. Unsec. 5yr Sr. Unsec. 3yr Cert. of Depo. 1yr Cert. of Depo. 2yr Sr. Unsec. 3yr Cert. of Depo. 2yr Sr. Unsec. 3yr Sr. Unsec. 5yr Sr. Unsec. 2yr Sr. Unsec. 3yr Cert. of Depo. 1yr Cert. of Depo. 2yr Sr. Unsec. 3yr Sr. Unsec. 5yr Sr. Unsec. 3yr Sr. Unsec. 5yr Sr. Unsec. 5yr Sr. Unsec. 4yr Sr. Unsec. 3yr Sr. Unsec. 5yr Sr. Unsec. 3yr Sr. Unsec. 5yr Sr. Unsec. 2yr Cert. of Depo. 2yr Amount (RMB mn) 1,000 750 300 1,100 200 400 500 400 50 750 250 1,000 1,300 3,000 1,200 100 170 1,150 1,000 1,000 300 150 750 36 400 3,500 5,500 3,700 3,500 2,000 500 500

Red: Deals led by HSBC

Coupon (%) 1.400 6.375 1.150 1.350 1.100 2.000 4.250 Step Up 0.750 11.500 1.150 1.000 6.000 1.150 10.000 0.750 1.400 4.750 1.450 1.550 3.100 1.800 5.250 0.500 Step Up 7.625 7.500 9.250 1.800 10.500 0.950 1.400

Synthetic (Y / N) N N N N N N N Y Y Y N N N N Y Y N N N N N N N Y Y Y Y Y N Y N N

1. Bloomberg Standard League Table. As of YTD end April 2011 2. HSBC in-house records

3. Issue ratings

15

HK launched the first offshore RMB equity IPO

Paved way for more issues in the future

Launched on 19 April 2011, the first RMB equity IPO outside mainland China HSBC as Joint-Lead Arranger and Receiving Bank Expanded RMB product suite. A way to deploy RMB liquidity in HK Upcoming RMB FDI (Foreign Direct Investments) policy will drive more RMB IPOs

16

Product and Service Distribution

Providing convenience; replicating overseas

Providing Convenience

Business Internet Banking supporting RMB transaction since Jul 2010 160,000 commercial banking integrated accounts with RMB capabilities RMB cash withdrawal available at ATMs in Hong Kong · Business Internet Banking supporting RMB transactions.

Replicating overseas

RMB Retail Banking services offered in 9 Asia Pacific markets

· RMB cash withdrawal now available.

17

Developing global platform

RMB capabilities established in over 40 markets across all 6 continents

Russia Canada UK Germany Switzerland USA Bermuda Mexico France Italy Spain

Poland Czech Slovakia

Kazakhstan

Greece Israel

Georgia Armenia Turkey UAE

South Korea Bangladesh India Thailand

Japan

Saudi Arabia

El Salvador Panama Brazil Mauritius Paraguay Chile Uruguay Argentina South Africa

Hong Kong Macau Philippines Vietnam Malaysia Brunei Indonesia

Singapore

Australia

New Zealand

Red: RMB Trade Transaction Completed Black: RMB Trade Transaction In Progress 18

Updated: 30 April 2011

Promoting awareness overseas

Overseas Roadshows

Regional Advertisement

A recent RMB Roadshow in Istanbul, Turkey: 11th May 2011

19

Key takeaways

Opening of China is an opportunity, not a threat

HK reinforcing its position as the logical gateway into China

Rapid rise of RMB and its eventual full convertibility shifts the dynamic in HK

HSBC has the ideal international platform - product capability and distribution - to capture the opportunity

20

Contact

Mr. Hugh Pye

Head of Investor Relations Asia-Pacific HSBC Holdings plc L38 HSBC Main Building, 1 Queen's Road Central, Hong Kong Phone: 852 2822 4908 Fax: 852 3418 4745 Mobile: 852 6394 7466 Email: [email protected]

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