HSBC has been forced to pick a side — facing pressure from China to support its controversial security law and spurned by the West for doing so — and the bank appears to have chosen to protect its profit against the backdrop of an ongoing strategic overhaul that hinges on a “pivot to Asia.”
For years the London-based lender, which derives the bulk of its profit from China, has managed to sidestep political scrutiny by maintaining a tacit neutrality even as anti-government protests erupted across Hong Kong last year. But in June, the bank was forced to take a stand.
After it was singled out by Chinese media and political influencers for not publicly backing Beijing’s new security law, which sharply curtails civil liberties known to Hong Kong’s residents, the bank’s top Asia executive Peter Wong signed a petition supporting the policy. Additionally, HSBC said in a statement it respects and “supports laws and regulations that will enable [the city] to recover and rebuild the economy and, at the same time, maintain the principle of ‘one country two systems’” — an agreement granting the territory some level of autonomy when it was handed over by the British in 1997.
The move has been decried by politicians in the U.K. and U.S., who consider the policy a violation of Hong Kong’s autonomy. U.S. Secretary of State Mike Pompeo this week accused HSBC of buckling under pressure from Chinese officials and called the act a “corporate kowtow.”
Whatever criticism the bank may face in the West, analysts say HSBC and Standard Chartered, another London-based, Asia-focused bank that similarly endorsed the security law, are vulnerable to a backlash from the Chinese government, which runs “high on retribution and low on tolerance for dissent,” Jeffrey Halley, an OANDA senior market analyst for Asia Pacific, told Fastinform.
As CMC Markets analyst David Madden put it, both banks “know what side their bread is buttered.”
“The U.K.-listed banks have taken China’s side, as it is clear they want to cozy up to the second largest economy in the world,” Madden said.
For HSBC, the stance is the culmination of the bank’s years of shifting focus back to Asia.
“HSBC is protecting its China profits by endorsing the new security law,” Halley said. “It has probably decided that protecting this revenue stream is preferable to potentially running into issues with the U.S. and U.K. governments. This is all about choosing the lesser of two evils from a commercial point of view.”
Nonetheless, the move appears to have so far done little to appease Beijing. In the state-run Global Times, an academic said the statement “should have come earlier.” Another piece this week accused the bank of “betraying Huawei” by providing information in a U.S. criminal case against the telecom giant.
The bank has also not won itself friends in Hong Kong. Joshua Wong, the pro-democracy activist who has become the face of the Hong Kong protests, has denounced the bank, which came under fire for closing the account of a crowdfunding effort supporting the protests. Bank branches were vandalized and HSBC’s iconic lion statues were covered in red paint and briefly set alight during a demonstration, though the bank has said the accounts were closed for regulatory, not political reasons.
“No one can serve two masters. Either you will hate one and love the other, or you will be devoted to the one and despise the other,” Wong wrote, quoting a Bible verse.
The bank has always had a major presence in the city. HSBC was founded in 1865 as the Hongkong and Shanghai Banking Corporation, operating as a conduit between Asia and the West.
It moved its headquarters from Hong Kong to London in 1993 amid a push to expand globally. But in 2015, then-CEO Stuart Gulliver announced an overhaul that would cut 50,000 jobs, scaling back operations in Europe, and a “pivot to Asia” — specifically targeting growth in China’s Pearl River Delta.
“The world is increasingly connected, with Asia expected to show high growth and become the center of global trade over the next decade,” Gulliver said when he unveiled the strategy. “I am confident that our actions will allow us to capture expected future growth opportunities and deliver further value to shareholders.”
Under current CEO Noel Quinn, the shift has become even more apparent. In February, Quinn said the bank would cut 35,000 jobs — slashing from its operations in Europe and the U.S. — and would again redirect assets to Asia and the Middle East. Last month, HSBC also took full ownership of its joint life insurance venture in China after Beijing removed its foreign ownership restrictions.
“This transaction supports our ambition to accelerate growth within our Asian franchise, particularly in the dynamic and fast-growing Greater Bay Area, where we fully intend to expand in all lines of businesses,” Quinn said.
The Financial Times in May, citing unnamed internal sources, reported the bank’s board has urged executives to take an even bolder turn toward China and weigh a possible sale of its U.S. business.
“What HSBC needs to understand is, for better or worse, their opportunity is in China,” one source told the FT.