Amid concerns China’s authorities are using the account seizures to crack down on dissent.
By Nick Corbishley, for WOLF STREET:
HSBC has once again shown that it will do just about anything to secure continued access to China’s huge market. That includes freezing the assets of pro-democracy politicians and protesters.
The bank was one of three lenders that were accused this past weekend of freezing the bank accounts of former Hong Kong lawmaker Ted Hui and his family, who fled to the UK late last week. Hui was one of 19 pro-democracy lawmakers to resign following Beijing’s decision in November to disqualify HK lawmakers who weren’t deemed sufficiently loyal. He faces nine criminal charges in Hong Kong, including money laundering offenses, and is suspected of breaching Hong Kong’s recently imposed national security law.
After the story went viral, the accounts were mysteriously unfrozen for a number of hours, allowing Hui to transfer the family’s savings to somewhere “safe,” before they were frozen again on Monday.
On the same day, the Good Neighbor North District Church in Hong Kong, whose volunteers gave “humanitarian aid” to pro-democracy protesters, reported that its account with HSBC had also been frozen, along with accounts belonging to its pastor Roy Chan and his wife. Hours later, the church was raided by Hong Kong police.
These incidents have further dented HSBC’s already tarnished reputation, plunging the UK-registered bank back into the complex mire of geopolitics in Hong Kong. The timing could not have been worse, coinciding with the release of a second sanction list, this one by the UK, targeting Chinese officials responsible for disqualifying Hong Kong lawmakers deemed to be disloyal to Beijing. On the first list was the chief executive of the Hong Kong Special Administrative Region (SAR), Carrie Lam, who says she is stashing “piles of cash” at home since the measures prevented her from accessing basic banking services.
The U.S. Secretary of State Mike Pompeo has already accused HSBC and Standard Chartered of aiding China’s repression of Hong Kong. Despite being registered in the UK, where they are regulated by the Bank of England, both banks are first and foremost Asian banks. For that reason, they threw the full weight of their support behind China’s imposition of security legislation on Hong Kong in June. The law, imposing China’s security apparatus on the city, essentially sounds the death knell for Hong Kong’s “one country two systems” administration, which had been in place since the British handover to China in 1997 and was meant to afford the former British colony a high degree of autonomy until 2047.
The account seizures have also prompted many Hong Kong citizens to wonder just how secure their own bank accounts might be, amid rising concerns that Chinese authorities are using bank account seizures as a means of cracking down on dissent in Hong Kong. The Hong Kong Monetary Authority has done little to dispel this impression, arguing that the freezing of funds or property is simply the result of criminal investigations being conducted by HK police and banks are expected to cooperate.
But each time they cooperate, the banks risk not only alienating a chunk of their customer base but also undermining Hong Kong’s standing as a global financial center. Although Hong Kong has not suffered large asset outflows during the last year and a half of political instability, instead benefiting from inflows attracted by a large number of IPOs, some well-heeled residents are beginning to shift some of their assets overseas, reports Reuters.
As that happens, HSBC is doubling down on its pivot to China, scaling back its European and U.S. operations and accelerating its retreat from other emerging markets. In 2017, it became the first global bank to launch a majority owned-investment banking venture in mainland China, with its base in Shenzhen. It has also recently opened two “Jade Centers,” one in Shanghai and the other in Beijing, to cater to the wealth management needs of China’s high net-worth individuals.
Although the lion’s share of HSBC’s global business takes place in Hong Kong — together with mainland China, the city accounted for 78% of its total pretax profit in the third quarter of this year — its senior ranks continue to be drawn almost exclusively from the U.S., the UK and Europe. Just two out of 14 senior board members are Chinese, though pressure is beginning to rise on the lender to reorient its governance.
HSBC’s growing dependence on China also comes with big risks attached. Despite its long history of influence on Hong Kong, HSBC is now a lot more dependent on China and Hong Kong than vice versa, as evidenced by China’s periodic threats to place the lender on its black list of “unreliable entities,” which would cut the lender off from its biggest market.
HSBC’s exclusion from the ranks of banks that arranged a Chinese government dollar-bond sale in October, for the first time in years was perhaps intended as a foretaste. The message: no matter how much the bank kowtows to Beijing, it could still be sidelined from its largest market.
The bank’s relations with London are also souring. On Tuesday, Conservative MP Iain Duncan Smith called on the UK government to call out HSBC’s actions:
“This is not a bank that has started in China, based in China, [with] nothing to do with the UK. This is a bank that benefits from its location here in London, is highly thought of amongst the trading community and behaves in this disreputable and appalling way, that freezes accounts on an individual fleeing for justice. Surely that is an outrage the Government can now say should stop?”
Westminster’s China Research Group says the UK should even sanction banks that help implement Hong Kong’s new security legislation and curtail human rights. The UK government, like Washington, has so far shown little inclination of taking punitive action against some of the UK’s largest lenders. It has enough on its hands trying to minimize the impact of the UK’s divorce from the EU in three weeks on the City of London’s financial interests. It is truly a sign of the turbulent times we live in that the future is now so uncertain for both London and Hong Kong, two of the world’s five largest financial centers. By Nick Corbishley, for WOLF STREET.
Some property owners are more exposed to the fallout than others. Read… Three Big Retailer Casualties in One Week: UK Retail Landlords Reel after Worst Week of Nightmare Year
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