Moody\'s Investors Service has today assigned
first-time ratings to HSBC Bank (China) Company Limited (HSBC China).
They are local and foreign currency deposit ratings of A2 (long-term) and
Prime-1(short-term), and a bank financial strength rating (BFSR) of D.
The outlook for the long-term deposit ratings is positive and for the
BFSR stable.

HSBC China is wholly owned by Hongkong and Shanghai Banking Corporation
Limited (HSBC HK) (Aa2 positive/B+ stable) in Hong Kong, which is in
turn also wholly owned by HSBC Holdings Plc (Aa2/positive) in the UK.
HSBC China is a newly locally incorporated bank, which was converted from
the branches of HSBC HK in Mainland China.

The A2 long-term deposit ratings incorporate Moody\'s view on the strong
implicit support from its parent HSBC HK. However, they are also
constrained by China\'s A2 sovereign country ceilings. The positive
outlook for HSBC China\'s deposit ratings reflects Moody\'s positive
outlook on China\'s sovereign ceilings.

\"Its D BFSR reflects its strong intrinsic value as an integrated and
strategically crucial part of the HSBC group, its solid brand name in
China, and its position as the leading franchise among foreign bank
subsidiaries in the Mainland,\" says Yan. \"The BFSR also considers its
well-designed strategy to take advantage of opportunities presented by
the opening of a rapidly growing Chinese banking sector, and its
relatively stable financials as compared to its local peers,\" adds Yan.

\"On the other hand, these strengths are offset by HSBC China\'s small
national banking market share as well as the significant challenges HSBC
China faces in its ambitious growth strategy, in particular the shortage
of experienced banking professionals and the pressure to maintain sound
operational control and risk management, \" says Yan. \"In addition,
various hurdles still exist for foreign bank operations in China, and the
banking environment is increasingly competitive,\" adds Yan.

As a locally incorporated foreign bank subsidiary, HSBC China can, once
approved, conduct local currency (RMB) retail business with Chinese
nationals pursuant to China\'s commitment -- under its World Trade
Organization agreement -- to open its banking sector. This last point was
reinforced by the China Banking Regulatory Commission\'s recent guidelines
for \"foreign-funded banks in China\" issued in November and December 2006.

HSBC China\'s strategy for the next few years is to focus on the high-end
wealth management retail business as well as deepen cross-sales to
corporate clients and expand into local clients with either significant
needs overseas or demand for global products. In addition, the bank will
continue to expand its physical distribution footprint. With the retail
market opening to locally incorporated foreign banks, it will enjoy
significant growth in its retail business for which it plans to leverage
its reputable high-end wealth management brand product \"HSBC Premier.\"

The growth of its retail business will balance HSBC China\'s revenue mix.
Currently, the bank\'s operation in China is predominantly in corporate
business, wherein large, mostly multi-national corporate clients account
for the largest share of operating income and after-tax profit, followed
by middle-market & local commercial banking clients. The growth in retail
business will provide earnings stability as well as lower overall risks
for HSBC China\'s business. On a pro forma historical basis, HSBC China
shows profitability above its Chinese peer average, thanks to proper
risk-pricing practices and high value-added non-interest income from
services to its more sophisticated, largely, multinational clients. But
because of its relatively small scale and ongoing, significant
investment, the cost to income was relatively high and above its Chinese
peer average, and is likely to remain so for the next few years.

As a leading foreign bank in China with a long operating history, HSBC
has a solid brand name on the Mainland. It has 35 outlets in China, the
largest network among foreign banks. Its principal business lines
comprise banking services for large and/or highly sophisticated
customers, a number of whom are HSBC group clients globally. Its
treasury, cash management and other corporate banking services
incorporate the benefits of its expertise, products, and the group\'s
very large trading books. Its trade finance activities utilize the
group\'s global network and direct relationships with companies worldwide
and which trade with China.

Asset quality has been healthy. Its non-performing loan ratio was only
1.08% at end-2006, much lower than that of its Chinese peers, although
the special-mentioned loan category was relatively high. Liquidity risks
and market risks are well managed and in accordance with group policy and
practices. The bank runs a commercial surplus and expected growth in RMB
deposits should further diversify its funding sources, thereby further
improving liquidity. HSBC China has a target total capital adequacy ratio
of 10%. Surplus capital will be recycled to the parent, which centralize
capital use plans.

HSBC China serves as a local base for its parent\'s cooperation with its
strategic Chinese partners, including the Bank of Communications
(Baa2/D), Bank of Shanghai (not rated) and PingAn Insurance (not rated).
Its cooperation with local banks and insurers constitutes another
important part of HSBC group\'s expansion strategy in China. As a result,
HSBC China will gain local market knowledge and outsource some local
services, but also bear some costs for its parent\'s activities in China.

Nonetheless, HSBC China will face significant challenges in its business
in China. The aggressive expansion plans need to be supported by a large
number of new hires and the shortage in experienced professionals could
be a bottleneck. In addition, the rapid growth in loans and assets could
exert considerable pressure, especially on control and risk management,
to the franchise. Although the bank will be established with RMB8 billion
of capital and is expected to be self-capitalizing through internally
generated earnings, capital may come under pressure as it rapidly expands.

In terms of support, Moody\'s believes that HSBC China is very strategic
to HSBC HK and HSBC Holding\'s global operations. Therefore, it will
receive very high parental support, if needed. The bank\'s long-term A2
ratings enjoy a multiple-notch uplift as a result of parental support,
but stay constrained by China\'s A2 local currency and foreign currency
deposit ceilings.

Because of its small national market share, the bank is unlikely to
receive any systemic support from the Chinese government, if need arises.
Therefore, no systemic support has been assigned to HSBC China.

HSBC China\'s BFSR is likely to move upwards if the bank can demonstrate
that it can deliver its targeted growth in a quality manner. The BFSR is
unlikely to be downgraded, except if the bank suffers a significant
deterioration in asset quality, capital level, and negative shocks due to
bad management. HSBC China\'s deposit ratings are likely to be raised if
China\'s sovereign rating enjoys an upgrade or vice versa.

HSBC China, headquartered in Shanghai, is one of the largest foreign bank
subsidiaries locally incorporated in China. At end-2006, it had total
assets of RMB91.5 billion (USD 11.8billion).