HSBC caught in superpower tug of war
27 Jul 2020

The Chinese social media app WeChat might seem to be an unusual place for HSBC to publicise a decision that could alter its history, but Peter Wong knew exactly what he was doing. With its 1.2 billion users, the platform offers a direct route into homes across the People’s Republic — and to the corridors of power in Beijing.

So maximum impact was assured last month when HSBC posted on WeChat a photo of Wong, its most senior executive in Asia, signing a petition in support of China’s new security law for Hong Kong.

That post in effect declared that HSBC — listed in London, but making much of its profit in Asia — was on the side of Beijing in China’s battle to tighten control of the former British colony. It also pitched the bank into the middle of a global political firestorm.

The tension ratcheted up a notch last week when the foreign secretary, Dominic Raab, suspended Britain’s extradition treaty with Hong Kong “immediately and indefinitely” in response to the security clampdown.

With each escalation in Hong Kong, the £75.5bn FTSE 100 juggernaut that is HSBC risks becoming collateral damage in an international power struggle.

Earlier this month, Donald Trump signed the Hong Kong Autonomy Act, giving America the power to penalise banks doing business with officials and organisations that have backed the security law, which bans subversion against China in Hong Kong.

The president’s signature came on the same day that the Westminster government reversed its decision to allow the telecoms giant Huawei a role in building Britain’s 5G network — a decision for which Trump claimed credit.

The moves looked to be part of a concerted effort by the West to fight back against the Chinese premier Xi Jinping, who has gone toe-to-toe with Trump in a trade war that shows no sign of easing despite the coronavirus pandemic.

Concern about becoming a casualty of tensions between the two superpowers is felt at the highest level in HSBC, which once billed itself as “the world’s local bank”. It had already enraged Beijing by helping the US Department of Justice pursue Huawei’s finance chief, Meng Wanzhou, who is accused of sanctions busting. Wanzhou, the daughter of Huawei boss Ren Zhengfei, denies the allegations.

Last week, a report in the Global Times, an English-language newspaper considered a mouthpiece of the Chinese Communist Party, said: “If the UK, as part of the Five Eyes, upholds such a hostile attitude toward China, Beijing may have no other choice but to strike at British companies like HSBC and Jaguar Land Rover in response to the sanctions imposed by 10 Downing Street.” Five Eyes is a security and intelligence pact made up of America, Canada, Australia and New Zealand, as well as the UK.

While the bank is used by Beijing as a financial bridge between East and West, it is still considered a British company. Yet here and in America, it risks being seen as too close to Beijing. The US secretary of state, Mike Pompeo, has accused HSBC of a “corporate kowtow”. Tory and Labour politicians have urged the bank’s chief executive, Noel Quinn, and chairman, Mark Tucker, to withdraw support for the national security law.

“You have to be on side with the UK government, the US government, China and Hong Kong,” said a former senior HSBC banker. “In the last months, HSBC has been tested across all four of those at the same time. I can’t think of any other circumstance where that was the case.”

The fallout could force a reshaping of the 155-year-old bank. HSBC’s future lies in Asia, which accounts for about 90% of its $13.3bn (£10.6bn) profit before taxes, but it also has a crucial US business that allows it to clear dollars and serve rich American companies. One source said there was about $2bn of revenues booked elsewhere in HSBC as a result of corporate relations managed in America.

The bank’s second-quarter earnings, due to be released on August 3, will reveal the impact of Covid-19, and will probably include provisions for losses on loans in Hong Kong, Europe and America.

Tucker, formerly boss of the insurers AIA and Prudential, became chairman three years ago and is resident in New York. Analysts see his location as a possible sign that he is getting to grips with HSBC’s underperforming US business. It is rumoured that he could axe parts of it, such as the retail bank. One source said the board had debated whether to exit the US altogether.

The autonomy act means HSBC, along with rivals such as Standard Chartered, now faces the threat of US sanctions if they do business with Chinese officials who are seen to undermine Hong Kong’s semi-autonomous status.

By Emma Dunkley and Peter Evans, The Times, 26 July 2020

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