China capital markets Be prepared to seize the investment opportunities

INVESTOR GUIDE capital markets Be prepared to seize the investment opportunities | 2

China is opening up new doors to investment

China is widely regarded We are the perfect partner as one of the most to help you take advantage attractive markets globally of the opportunities in for investors. Yet, many China's capital markets. corporate and institutional Recognised for our businesses may be unsure strength, experience and of where the opportunities unrivalled network, we are lie or how to take here to support you. advantage of them.

The good news is that in recent years, China has been reforming its capital markets, liberalising its financial system and internationalising its currency to encourage more foreign corporates and institutional investors to participate in its economy. China capital markets Be prepared to seize the investment opportunities | 3 Seizing China’s rising potential China's economy is more open and globally connected than ever before, with strong emphasis on trade and investment openness, and emerging new channels to help investors access its domestic capital markets.

Did you know? China’s bond market Equity access quota is gradually becoming a part USD RMB of the global asset allocation for fixed income investors 94.5bn 589bn China’s capital markets QFII (Qualified RQFII (RMB Qualified Foreign Institutional Foreign Institutional are among the biggest globally Investor) quota issued Investor) quotas issued yet it is largely funded by RMB bond issuance RMB domestic investors in 2016, up 56% daily trn from 2015 northbound China’s equity market: China’s bond market: 36 26bn quota world’s world’s RMB daily Almost half of southbound nd rd global fixed 21bn quota largest largest income investors 2 3 for Shanghai and Shenzhen – Kong (by total market cap) 49% plan to increase Stock Connect Programmes 1 exposures to China in (as of Sep 2017) the next 12 months 4 China’s equity market 3 Internationalisation of RMB listed RMB is the 1,355 companies HSBC Qianhai is the most actively used on the Shanghai majority rd currency in trade finance (as of Sep 2017) st foreign owned 3 (as of Oct 2016) listed 1 and the 2,054 companies securities company in China most used global on the th payment currency (as of Oct 2017) (with a 51% stake) (as of Oct 2017) 2 6 5

1 World Federation of Exchange, Dec 2016; Bank of International Settlements, Mar 2017 4 China Securities Regulatory Commission, Sep 2017; Hong Kong Stock 2 , Sep 2017; Shenzhen Stock Exchange, Oct 2017 Exchange, Sep 2017; State Administration of Foreign Exchange, Sep 2017 3 People's Bank of China, Sep 2017; FinanceAsia's Asian Bond Investor Survey, Nov 2017 5 Swift 2017 Increasing connectivity China capital markets Be prepared to seize the investment opportunities | 4 over time What you need to know China is gradually opening up its capital markets, • China has introduced simplified • Easier cross-border trading channels to enter the CIBM between Hong Kong, Shanghai with simplified channels, enlarged quotas and easier and Shenzhen stock markets access for foreign financial institutions and investors. • China has enlarged QFII and RQFII quotas to meet increasing • Easier access to interbank foreign demand and has improved exchange market to hedge RMB the repatriation processes foreign exchange exposure with onshore counterparties

2002 June 2017 Qualified Foreign 2016 Inclusion of A-shares into Institutional Investor Scheme MSCI’s Emerging Markets (QFII) launched China Interbank Bond Market Index is announced (CIBM) Direct launched Opening up China’s A-share 2014 To be implemented in 2018, driving Giving foreign financial institutions market to foreign investors for Shanghai-Hong Kong Stock greater demand by foreign investors access to a wide range of fixed income the first time Connect launched for onshore exposure instruments in China’s bond market Providing a new route into China’s largest stock exchange + ++ 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2011 October 2016 RMB Qualified Foreign Institutional Inclusion of RMB into the International Investor Scheme (RQFII) launched Monetary Fund’s Special Drawing Right currency basket RMB version of QFII officially launched, allowing onshore securities to be traded RMB now makes up 10.92% of the basket

2015 July 2017 December 2016 Bond Connect launched Mutual Recognition of Funds (MRF) launched Shenzhen-Hong Kong Stock Connect launched Allowing overseas investors to trade on the CIBM with their usual international methods Providing mainland China and Providing access to a market that is home to many via the Connect platform and settle bonds Hong Kong products with new "new economy stocks" in sectors like technology, more simply via Hong Kong cross-border mobility media and healthcare China capital markets Be prepared to seize the investment opportunities | 5 Investing in China’s capital markets With the further opening up of the onshore capital market, offshore investors can now access China’s equity and bond markets via a variety of schemes. The schemes are designed for different types of investors and products.

Applicable products Eligible investors Dealt currency* Asset allocation

• Exchange-listed A-shares, bonds and warrants • Overseas asset management Onshore CNY No restriction on QFII • Fixed income products traded in interbank bond market companies, insurance asset allocation companies, securities Scheme • Securities investment funds firms, banks, funds, • Index futures (for hedging only) government agencies • Subscription to initial public offerings, additional issuance, rights issues and convertible bond issuance

• Exchange-listed A-shares, bonds and warrants • Qualified financial Onshore CNY No restriction on Inbound RQFII • Fixed income products traded in interbank bond market institutions in designated asset allocation offshore RMB markets Investment Scheme • Securities investment funds • Index futures (for hedging only) • Subscription to initial public offerings, additional issuance, rights issues and convertible bond issuance

• Cash bonds in interbank market, including government • Type 1: Central banks, monetary Onshore CNY and No restriction on bonds, People’s Bank of China (PBoC) bills, financial authorities, international foreign currency asset allocation bonds, commercial paper, medium-term notes, financial organizations, bond forwards, bond lending and other instruments sovereign wealth funds • Derivatives such as bond forwards, bond lending, • Type 2: RMB clearing CIBM interest rate swaps and forward rate agreements banks, overseas RMB Scheme • Type 2 and 4 investors are only allowed to invest in participating banks derivatives for hedging purposes; type 3 investors are • Type 3: QFIIs and RQFIIs only allowed to invest in cash bond and certificates • Type 4: Other foreign of deposit; no restriction for type 1 investors institutions

*CNY refers to onshore RMB and CNH refers to offshore RMB. China capital markets Be prepared to seize the investment opportunities | 6 Investing in China’s capital markets

Applicable products Eligible investors Dealt currency Asset allocation

Inbound • Fixed Income instruments in interbank market, • Central banks, monetary CNH or CNY No restriction on Investment including government bonds, PBoC bills, authorities, international (dealt offshore) asset allocation financial bonds, commercial paper, financial organizations, Bond medium-term notes and other instruments sovereign wealth funds Connect (The initial phase of Bond Connect only supports Northbound • Commercial banks, insurance Trading by institutional professional investors) companies, securities firms, asset management companies, other wealth management and other financial institutions

Northbound Northbound CNH N/A • Constituent stocks of SSE180 index and SSE 380 index • All Hong Kong and • Constituent stocks of SZSE Component Index overseas institutional and China Stock and SZSE Small/Mid Cap Innovation Index with individual investors Two-way Connect market capitalisation not less than RMB 6 billion Southbound Investment Southbound • Qualified mainland investors

• H-shares in LargeCap index and Mid-Cap index (Remarks: ChiNext participation is limited • H-shares in SmallCap index with market to institutional professional investors) capitalisation not less than HKD 5 billion • Dual-listed A and H shares on SSE or SZSE and SEHK

• General equity funds • General investors for publicly N/A Funds sold in offered funds in mainland Hong Kong Mutual Fund • Bond funds China and offshore markets cannot be Recognition • Mixed funds invested mainly (MRF) • Unlisted index funds in Hong Kong, • Physical index-tracking exchange traded funds and vice versa China capital markets Be prepared to seize the investment opportunities | 7 We know the way With our unrivalled heritage in China together with our global presence, leading service and financial expertise, we can show you and your business the way.

Global Leading Leading network international international with over bank in bank for 3,900 China RMB offices We are the leading international bank with We have established RMB trade the largest onshore network in China and settlement capabilities across more across 67 countries and territories. 24 China desks around the world. than 50 markets globally and dedicated RMB experts in key offshore centres. China capital markets Be prepared to seize the investment opportunities | 8 HSBC Qianhai: Your competitive advantage

We have partnered with Qianhai Financial Holdings to offer HSBC Qianhai. HSBC Qianhai is your simple, convenient doorway into China's capital markets. HSBC is the first foreign bank to have a majority-owned securities joint venture in China.

At HSBC Qianhai, we work closely with HSBC’s bankers and product specialists to bring you a broad spectrum of investment banking and market products and solutions

Timing 1. Sharing your strategic vision

Phase 1 – we have obtained Phase 2 – by the end of We start by understanding your business the following licenses in 2018 we are applying We recognise that the world’s Only by investing the time to November 2017 to offer: for licence to offer: capital markets are complex and understand your business’s highly interconnected, and that background, strategy, people, • Underwriting and sponsoring • Mergers and acquisitions advisory clients with strategic China interests infrastructure, policies and • Brokerage • Trading look to us for advice and well- procedures we can provide you • A-share research • Asset management established execution services. with the bespoke services you need to achieve your goals.

2. Extensive capabilities in underwriting and sponsoring

Need securities underwriting Looking to access China’s debt capital markets? Require equity capital markets expertise? and sponsoring advice? If you’re looking to raise funds from fixed income instruments, Our capabilities in onshore equity issuance complement HSBC Qianhai offers a wide range of securities we can help you access China’s huge onshore debt capital HSBC’s leading international banking platform. underwriting and sponsoring expertise: markets, one of the largest bond markets in the world. We offer: This vital piece of our capital financing services covers a broad range of products including: • Primary equity and debt capital markets • Well-established international bank with on-the-ground debt capital markets teams • Initial public offerings • Secondary equity offerings • Holistic financing solutions encompassing • Follow-on offerings • Bespoke structured financing both the exchange and interbank markets • Rights, convertible bonds, exchangeable bonds, • Corporate advisory services: jointly with other HSBC entities and preferred shares issues » Business valuation • Facilitation of two-way cross-border financing » Negotiation • Support for domestic issuers to access » Pricing and structuring of transactions the international debt markets • Competitive debt financing solutions including: » Enterprise bonds, » Asset backed securities corporate bonds, » medium-term notes » Hybrid and and commercial paper sustainable bonds » Financial bonds HSBC Qianhai: China capital markets Be prepared to seize the investment opportunities | 9 Your competitive advantage

3. Experience and advice in 4. Keeping you informed 5. Helping you access Mergers and Acquisitions (M&A) with Global Research China’s markets

A full range of M&A advisory services (upon obtaining license)* High quality, award-winning Providing a range of China We aim to offer M&A advisory services to state-owned and privately research and analysis securities brokerage services owned Chinese corporates, multinationals, financial sponsors and Our analysts are ready to equip you By leveraging HSBC’s long-established sovereign wealth funds. with topical, relevant and actionable connectivity to issuers, markets and Our experienced teams will be able to help you achieve further ideas and commentary. We aim to cover investors, HSBC Qianhai gives you growth and expansion through both domestic, outbound and inbound over 400 pure A-share companies by world-class brokerage services, and activities including: the end of 2020, with a focus on the access to China's exchange traded higher growth new economy sectors. equity and fixed income markets. • Overseas investments • Corporate restructurings The research reports will be published Our broad execution capabilities and • M&A transactions in English and Chinese simultaneously strong network can help you enhance and distributed globally, as the first your market liquidity and efficiency. We will also work closely with HSBC’s global M&A bankers, of their kind. Insights include: sector specialists and financing solutions teams to execute complex Our range of services includes: cross-border transactions. • Major investment themes • Breaking news • Connection to HSBC teams around the world in 80 countries and cash • Global views and local ideas bonds across 50 countries • Insight on specific opportunities Experienced M&A teams with a breadth of knowledge • Sales coverage on cash equities • Strong connections to HSBC’s and bonds • Our global M&A business is handled by specialist M&A bankers research network and offshore • Real-time connectivity to the Shanghai in nearly 30 countries around the world, including some of today’s research capabilities fastest growing emerging markets and Shenzhen Stock Exchanges • Global research on the • Trade reporting • Product specialists delivering on-the-ground, in-depth insights macro-economy, foreign exchange, • Bankers based in the relevant country or region stocks and fixed income in existing • Research publication • Specialists with relevant industry expertise and emerging markets • Corporate access services

A one-stop M&A solution Bringing together our global network and our M&A business provides a one-stop solution which will aim to help Chinese corporates, institutions and multinationals achieve their M&A ambitions including: • Relevant, up-to-date market intelligence • Access to HSBC’s full suite of global and domestic financing and risk management products

*We are applying for a license to offer M&A advisory and other services by the end of 2018. A strong partner in China China capital markets Be prepared to seize the investment opportunities | 10

With our global network and in-depth local knowledge, we are uniquely qualified to fulfil the needs of corporate and institutional businesses looking to seize the huge opportunities within China’s capital markets.

Leading foreign bank in Strong presence in Leading bank in providing China connectivity the Pearl River Delta Bond Connect

HSBC China has the most banking Our market leadership in Hong Kong has provided HSBC China is one of the Bond Connect onshore and investment related licenses among a strong basis on which to build a sizeable presence in the dealers appointed by the PBoC to provide quotes and foreign banks. Pearl River Delta area, particularly in the growth areas of: trade directly with foreign investors. • Foreign exchange • Metals HSBC Hong Kong is one of the settlement banks in Hong Kong permitted to provide foreign exchange conversion from • Derivatives • Cross-border businesses foreign currencies to RMB at onshore CNY rates and related hedging services, and also offers custodian services. Best offshore RMB services provider across Asia Pacific Highly active in HSBC has been the winner of “Best Overall Provider corporate access of Offshore RMB Products and Services” in the Asiamoney Strong in China Interbank Offshore RMB Poll for six consecutive years, and voted as • Over 120 group and • China Discovery Bond Market (CIBM) the best in the following categories in 2017: bespoke investor trips to Forum with 20 corporates China in 2017 • First foreign bank approved as joint lead • Liquidity management • Advice/information • Dedicated corporate underwriter for Panda bond issuances by offshore on offshore RMB • Flagship annual China access team in Shenzhen non-financial corporates in CIBM. This is on top • Clearance, transaction regulations conference in Shenzhen banking and settlement with 150 corporates of the current capabilities to act as joint lead • Fund services underwriter for Panda bond issuance by foreign • Bond origination financial institutions and sovereigns. • Derivatives • Research • Bond settlement agents to assist foreign investors • Fund investment • Foreign exchange Leading bank in to access the onshore interbank bond market. • Wealth management QFII and RQFII custody • Leading wallet share in offshore central banks trading among foreign banks. HSBC is the leading onshore custodian bank in the QFII and RQFII schemes, with 33% and 54% of market share in terms of quota under custody respectively (as of Sep 2017). 1 Extensive China Multi-award winning research capabilities in Asia

We have comprehensive research coverage of the Significant market share • Asiamoney Country • FinanceAsia Country China market across all asset classes on topics including: in Stock Connect Awards 2017 – Best Awards 2017 – Best • Economics • Equities • Rates International Bank in China Foreign Bank in China Our combined trading and custody strategy • Credit • Fixed Income • Climate change has seen us capture significant Stock Connect • Euromoney Awards for market share where we hold between 40-45% Excellence 2017 – Asia’s • Currencies of the Shanghai Connect shares. Best Bank 2 3

1 Internal HSBC analysis based on information from the State Administration of Foreign Exchange 3 www.gbm.hsbc.com/about-us/awards/2017 2 Internal HSBC analysis based on information from the Seize the investment opportunities in China’s capital markets.

To learn more, please contact your HSBC relationship manager to discuss the opportunities.

Visit our websites:

HSBC China www.hsbc.com.cn

HSBC Global Banking and Markets www.gbm.hsbc.com

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