HSBC - Between a Rock and a Hard Place

Posted by Ed 23 mths ago

HSBC, headquartered in the UK, is first and foremost an Asian bank. The Hongkong and Shanghai Banking Corporation Limited cut its teeth in the 19th century in Greater China. In 2020, its Mainland and Hong Kong operations accounted for 39% of its annual $50 billion in revenue, while the United Kingdom, its second largest market, brought in 28%.
The bank is now selling off its retail banking units in France and the United States and scaling back its presence in some emerging markets in order to accelerate its eastward pivot.

But there’s a problem with this plan: Its success rests largely on the bank’s ability to maintain good relations with the Chinese government. And that is proving to be a tough proposition.

Relations have soured significantly over the past two years after it was revealed in 2019 that HSBC had ratted out Chinese telecom giant Huawei to the U.S. Department of Justice for breaching U.S. sanctions on Iran. The information provided by HSBC led to the arrest of Meng Wanzhou, Huawei’s chief financial officer and daughter of the company’s founder, in Vancouver in 2018.

As geopolitical tensions have escalated between the US and China, HSBC has had to walk a tightrope in its relations with China on the one hand and Washington and London on the other. The lenders’ travails reveal a core challenge for multinational firms operating in China: the market is vital to their growth prospects, but Western firms doing business there increasingly risk being mired in the ratcheting tensions between Beijing and the West.

Like its British arch-rival Standard Chartered, HSBC has already thrown its support behind China’s imposition of security legislation on Hong Kong. It has also frozen the assets of pro-democracy politicians and protesters, at the behest of Beijing. It is also suspected of being among seven as yet unidentified lenders that recently froze the accounts of Apple Daily’s owner Jimmy Lai, forcing the closure of the pro-independence newspaper.

But HSBC still remains in Beijing’s bad books. Citing the Huawei case and HSBC’s initial lackluster support for the security law, the People’s Daily, the main mouthpiece of the Chinese Communist Party, cautioned in June 2020 that HSBC risked losing much of its business and paying a “painful price” for having gone “to the dark side.”

In August Chinese regulators in Shanghai fined the bank and three senior HSBC bankers on the mainland and publicized their names. Chinese regulators have also reportedly stopped holding one-on-one meetings with senior HSBC bankers, according to two mainland employees at the lender cited by Reuters.
But given the size and growth of the market, many big global banks have decided to continue expanding in China, whether organically or through acquisitions. HSBC Holdings PLC, Standard Chartered PLC and Citigroup Inc. have all unveiled plans to beef up their wealth management operations in China, targeting the growing middle class.
But with net profits for foreign lenders falling precipitously and Beijing demanding that foreign companies toe the line as the US ramps up sanctions on China, it’s getting more and more complicated.

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