* HSBC would own up to 51 pct of proposed JV
* HK-friendly rules favour lender over foreign rivals
* Move carries risks amid China growth slowdown (Adds comments from HSBC CEO)
By Lawrence White
HONG KONG, Nov 2 (Reuters) - Europe's biggest lender HSBC is setting up a majority-owned securities joint venturein China, taking advantage of Chinese rules that favour HongKong-established banks over foreign peers in the world's secondbiggest economy.
HSBC's aim is to establish a foothold in issuing bonds inChina, which the bank sees as an area of strong future growth.
HSBC said on Monday it would own up to 51 percent of theproposed joint venture with China's unlisted Shenzhen QianhaiFinancial Holdings Co Ltd.
"It opens up quite a significant opportunity, mostly in thearea of bonds," HSBC Chief Executive Stuart Gulliver toldreporters on a conference call. "It allows us to do debt capitalmarkets in China in RMB (renminbi) for corporates."
HSBC has already said it plans to shift assets into China'sPearl River Delta region in the southern province of Guangdong,a move seen by analysts as potentially risky given the country'sslowing economic growth.
"As China moves forward people will have to save for theirown retirement, healthcare, education of their kids, etc. Thatmeans long-term liabilities and they'll need long-term assets,"Gulliver said.
He declined to forecast potential profits for the businessnor how much the bank has invested, but he said "it is notinsignificant."
"It will take us three to four years for it to becomeprofitable and start to make a return, but it's a significantcomponent of both our global banking and markets proposition inChina and also commercial banking," Gulliver said. He wasspeaking after reporting a 32 percent rise in quarterly profits.
HSBC should have an edge over foreign rivals due to its ownership of a Hong Kong-based banking subsidiary, The Hongkongand Shanghai Banking Corporation Limited.
Ownership for other foreign banks of their China securitiesjoint ventures is capped at 49 percent. Industry watchers saythose ventures suffer from restrictive licences that confinethem to underwriting stock offerings rather than share trading.
Since 2007, foreign investment banks operating through jointventures with local partners in China have struggled to makemuch headway. A Reuters analysis last year of data from China'ssecurities regulator showed they averaged a collective loss of21 million yuan ($3.31 million) a year.
HSBC said the proposed joint venture could engage in thefull range of investment banking and securities businesses inChina. The proposed venture is subject to regulatory review.
($1 = 6.3371 Chinese yuan renminbi) (Additional reporting by Steve Slater in London; Editing byKenneth Maxwell and Mark Potter)
HSBC Holdings (HSBA)
