HSBC and China

The controversial global banking giant HSBC with more than 200,000 is in the news again. This time the HSBC executive Sherard Cowper-Coles, HSBC’s head of public affairs, apologizes after calling the UK weak for following U.S. lead over China, pulling back on business with China. 

HSBC makes a large proportion of its profit in mainland China and Hong Kong, but is headquartered and listed in London, leaving it particularly vulnerable to increasing geopolitical tension between Beijing and the West.

The bank is hugely dependent on China, having been founded more than a century ago in the former British colony of Hong Kong to open up trade between East and West.

Hong Kong, which is now part of China, remains its top market, accounting for approximately one-third of the bank’s profits in the first half of this year. Meanwhile, Hong Kong and mainland China combined made up nearly 40% of profit, according to its most recent financial report.

But the bank has faced criticism in recent years on how it navigates political tensions between China and the West. HSBC is careful not to anger the Chinese communist party leadership and its politics.  

In 2020, HSBC’s top executive in Asia publicly declared support for a controversial national security law that Beijing introduced in Hong Kong, inviting fierce backlash from Western government officials and investors.

The lender also faced scrutiny in 2021 after Hong Kong police froze the accounts of former pro-democracy lawmakers and demonstrators. HSBC said it had little choice but to comply with the order to close the accounts for people on the list given to them. The incident led to a furor among foreign politicians, with CEO Noel Quinn summoned for questioning by British lawmakers at the time.

Bottom line is that HSBC is under the rule of the Chinese government. Therefore, HSCB is critical of the UK government when they are planning to limit business with China. It is certainly questionable in itself to follow the U.S. policy towards China instead of developing an independent UK Chinese policy. Furthermore, a bank should serve shareholders and try to optimize shareholder value and not be involved in politics. On the other hand, one could argue that if JP Morgan Chase or Goldman Sachs or any of the other major U.S. banks would criticize the politics of the U.S. government, the federal regulatory agencies would most likely move in and make life difficult for the critical banks. 

HSBC is in a difficult position as they are heavily dependent on China. One solution could be to break up the bank in a western democratic entity and a Chinese communist entity. This could solve the dilemma for the bank as it basically has to support China in its current form. 

Regardless of actions by the Chinese government such as financial regulations, tighter rules for transactions and investments, closing accounts of democracy demonstrators and so on, HSBC will continue to support the Chinese government. Many businesses and customers don’t care about politics as their goal is to get favorable loans and make money. 

From a moral perspective though, it would seem reasonable to sever ties with HSBC, a financial institution openly supporting the Chinese government. There are many other banks to choose from. 

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