Oct. 18 (Bloomberg) -- Bank of Communications Ltd., the nation's fourth-largest by market value, said there's no legal, regulatory or technical obstacle for partner HSBC Holdings Plc to increase its ownership in the Chinese lender.

It's up to HSBC to decide the timing of the stake increase, Jiang Chaoliang, Chairman of the Shanghai-based bank, also known as Bocom, said in an interview in Beijing today.

HSBC, Europe's biggest bank by market value, paid $1.75 billion for 19.9 percent of Bank of Communications in August 2004. Its stake was diluted to 18.1 percent after the Chinese bank sold 3.19 billion yuan of shares on the mainland in May.

HSBC, which gets about two-fifths of its profit from Asia, has said it wants to return its holding to the original level. It also has an option, taking effect August 2008, to lift its stake to 40 percent should Chinese rules permit.

Bank of Communications will set up a credit card joint venture and an annuity management venture with HSBC once regulations permit, Jiang said.

HSBC in August became the first overseas bank to win approval to set up a rural bank in China as the government sought to spread the benefits of the nation's economic growth by boosting financial services in the less-developed regions.

Bank of Communications is also considering setting up branches in rural areas to tap the potential of the nation's 800 million farmers, Jiang said today. In the meantime, the bank will accelerate expansion overseas by adding branches in Frankfurt and Macau later this year. More outlets will be opened in India, Brazil, South Africa, Asia Pacific, U.S. and Europe.

Bank of Communications' shares in Hong Kong surged 88 cents, or 8 percent, to HK$11.82 at 10:02 a.m.

To contact the reporters on this story: Luo Jun in Shanghai at at jluo6@bloomberg.net; Yidi Zhao in Beijing at yzhao7@bloomberg.net

Last Updated: October 17, 2007 22:07 EDT