For HSBC, Life Gets Very Complicated in Hong Kong & China, its Number One Market, as China Tightens the Screws

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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  41 comments for “For HSBC, Life Gets Very Complicated in Hong Kong & China, its Number One Market, as China Tightens the Screws

  1. Martha Careful says:

    Money laundering by drug groups, or churches or political crowdfunding processes, still have to play by the rules and it’s always complicated, especially when linked to human rights and politics. One doesn’t have to look too far to see how religion is distorting politics in America.

    Fromr a recent story: “Separately, at least three HSBC accounts affiliated with the Good Neighbour North District Church have been frozen, a move the organisation called an “act of political retaliation” for its support for protesters during last year’s social unrest.

    Police said they were investigating the church over money-laundering and fraud charges, involving how it had received HK$27 million in donations over more than a year but only publicly declared less than a third of the amount.

    The church ran a ministry known as “Protect the Children”, which mediated between police and protesters with a bid to de-escalate protest tensions. The church account, and those of pastor Roy Chan Hoi-hing and his wife – who were on sabbatical in Britain – were frozen.”

  2. Micheal Engel says:

    1) HSBC is a primary dealer transferring USD and other currencies, in the global FX pipelines, to China.
    2) When the DOW will plunge USD/CNY and JPY/CNY will popup.
    3) After taking over, China purge HK opponents.

    • Sam says:

      “Bada Bing” (Origin – Sonny Corleone in The Godfather)
      Sopranos: “Bada Bing Bada Boom”.

    • c1ue says:

      What you say may have been true 30 years ago – it is not true today.
      China bought the majority of its USD denominated US Treasuries – trillions worth – directly.
      Nor are trade monies dominated by HK transfers any more – Shanghai has long since taken that over.

  3. Micheal Engel says:

    1) In 1998 HK was finally transferred to China, after a HKD deal was about to happen. HK became China most important bridgehead exporting made in China products to the world.
    2) The HKD was pegged to USD, not to GBP.
    3) Which one will fall further vs USD when the DOW will plunge :
    CNY or HKD ?

    • Ron says:

      3) HKD will fall further since it’s pegged to USD. The CNY will be a safe haven currency simply because China is the “manufacturer of REAL products” to the world. In otherwords, the CNY will buy you those engine components or transformers needed to stay alive.

  4. Ron says:

    The USA and European governments should heed some of China’s Sovereign maneuvers and take back control of their money creation by eliminating the “PRIVATE” Federal Reserve and “PRIVATE” Central Banks that control everything from the top down.

  5. Mike G says:

    The government monkeying with bank accounts for political spite is an express lane to obliterating HK as a financial center.

    • VintageVNvet says:

      Absolutely correct IMHO MG,,,
      And the reason for my post following your good comment is to make sure that all the folks on Wolfstreet understand it can happen in USA,,, HAS happened in USA,,, and in fact is fairly sure to happen in USA again sooner and later…
      IF WE the PEEDons allow it,,,
      OR it gets to the point where We the Peedons have absolutely NO control over it…
      I keep a Dorothea Langue photo from the wonderful collection in Oakland on top of my ”to do” list to make me look at it every day,,, of an elder Japanese man, very distinguished gentleman of the old school USA,, on his way to a concentration camp in 1942 in CA,,, `to keep me focused on what ”’they”’ can do and have done…
      And, in spite of all the long time and usual, ”this younger generation is going to the dogs” said since the early greek philosophers, etc,,,
      I am one who is optimistic that not only younger USA folks,, , but all folks everywhere in the world will do what needs to be done once again when the bad guys try to take even more control, as they tried in late 1930s era

    • Javert Chip says:

      Mike G

      I suspect that’s already well on the way to having happened.

      There are too many other non-Communist Asian cities ready to take over: Singapore & Kuala Lumpur, just to name 2.

      China can probably force financial volume through Shanghai as long as China is the overwhelming source of exports for Asia

      • Thomas Roberts says:

        China is responsible for a little over a third of exports from Asian countries. It makes up almost a third of Asias population.

        As China is typically the location of final assembly (for things that say made in China), China’s true value added to global manufacturing is smaller than that. And quite a lot of things made there depend on parts from other countries, they also must import most resources and they depend on western, Japanese, and others machinery to run those factories. You also can’t trust their numbers.

        The trade war is the current excuse, but, most companies with factories in China, want to move some or all production elsewhere. The trade war is a convenient excuse, but, the CCP taking over factories made there, stealing IP, kidnaping foreign citizens and increased cost of doing business, because of CCP greed and much more are the big reasons.

        Over the last few years the CCP has even begun to impose rules on things made there for sale elsewhere. Famously globes made there were coming to america with the 9 dash line on it, which is china’s claim to the south china sea. The CCP now often flat out refuses to produce many historical maps, because, they don’t fit the CCP narrative. There are endless cases like this. China is now more expensive to produce in then other countries, because, of CCP greed. Even many Chinese companies are setting up factories elsewhere.

        • roddy6667 says:

          If China is more expensive to produce in because of CCP greed, then who or what is responsible for America being 5X as expensive as China for manufacturing? Whose greed?

        • Thomas Roberts says:

          America is more expensive and the price varies, because, of the higher standard of living, education and many associated factors (such as city design). In any country there is a constant tug of War for control. America is the lead country for pushing the world forward through technological advances, this has lead to many problems such as political corruption as it becomes difficult to know how to run things as they change rapidly and the average person has difficulty understanding the changes and keeping up.

          In China, compared to the average workers salaries, the price of housing is skyrocketing, because, of CCP policies. The CCP controls everything in China and people have no where else to put their money. This greatly increases the cost of living and doing business.

          In China, most factory workers are still very poor. They live in dormitory housing or ant colonies and the like. They make almost nothing and are considered migrant workers in their own country and thus usually receive little to none public benefits. In China, because, the CCP controls everything there are not the same justifiable excuses why it’s becoming expensive.

          It would take too long to explain other ways that the CCP is making China more expensive, but, the fact is, if you are making something; Do you make it in China, where you won’t actually own anything and you have to constantly pander to the CCP, they can kidnaap anyone, or decide your new product is offensive to them and refuse to make it, or change it without telling you, the cost is rising and they may take everything away at their whim? Or do you setup your new factory in say India, where you do own it, can directly manage employees, it’s cheaper, and the Indian government doesn’t lord over you and there is an actual law system?

        • roddy6667 says:

          It doesn’t sound like you have spent much time in China. Your “CCP this and CCP that” reasoning is just parroting propaganda that you are being fed. My experiences from living the last years in China are quite different. There is a natural progression in industrial countries. Garment manufacturing is for those at the bottom, where China is no longer competitive in wages. The standard of living has improved too much. I have family members who have moved their manufacturing from Guangdong and Fujian to Vietnam, Cambodia, and Bangladesh. The profits still flow back to a bank in China. The Party is not taking over factories. Most new businesses are now private enterprises. The truth is the opposite of what you have written.

        • Thomas Roberts says:

          No roddy6667, you are the one living in a country without free thought and expression. The CCP’s plan is indeed to move up the manufacturing ladder. That plan started off okay, but is starting to fail.

          Alot of countries shifted manufacturing to China, because, of things like cheaper workers and access to the China market. However, the cost of doing business in China is rising and that market access is being pulled away, was never granted, or now requires too much following rules that limit success elsewhere (like Hollywood). A big example of this is Samsung, because, Chinese companies can assemble mostly foreign made parts into a cell phone; the CCP began to force civilians to purchase Chinese phones instead of Samsung. In response, Samsung is pulling out of China completely. While, few companies will pull out as rapidly as Samsung, the made in China 2025 plan will backfire, as the CCP takes away market access, while increasing the rules imposed on manufacturing there and the cost rises.

          The CCP’s big plan for higher end manufacturing mostly revolves around consumer electronics, which will probably also peak soon and then decline in money and significance soon, in a way similar to TV’s.

          There are many examples of the CCP stealiing or commandeering factories, the western owned factories that produce masks or other medical equipment in China that were taken over earlier this year are some notable examples. Let’s also not forget the CCP threeatened to cut off pharmaceutical supplies to america during a pandemic the CCP caused.

          As for a rising standard of living being the cause of rising price to do business there, this is also increasingly wrong. The fact is most factory workers are poor and live in shared housing, while the CCP attempts to build a middle class on top of them. Exact information on how big the middle class in China is difficult to obtain, because, of the CCP’s total control of information. Let’s not forget about factory workers usually not having Hukou (household registration in the cities they work in) this means they are not eligible for most basic social programs and even their kids might not be eligible to attend local schools. As the surveillannce state grows in China (and especially during economic downturns), the CCP might also begin to take money away from the middle class for themselves.

    • Mira says:

      a fear of the unknown ??
      kill it first & then we’ll look at it !!

  6. Rick says:

    China sees HSBC as an oversea extension of U.K’s financial dominance, who has way too much control of HK financial markets. It lost all trust the moment HSBC sold Huawei client trading detail to the US to avoid being prosecuted by the US court because of its own criminal banking activities. Surprise China hasn’t kick it out yet, surprise companies still do business with the bank lol

    • Mira says:

      The HSBC was the Herve Falciani whistle-blower fiasco ..
      Did he do it ?? .. or was he set up by the HSBC who collaborated with governments to fleece the wealth off its wealthy customers ??
      MS Christine Lagarde was involved .. offering information to Greece about its Tax Evading citizens ??
      A veritable ‘Who Dunne It’ .. was Falciani the patsy ??

      • Mira says:

        at all times MS Lagarde was compelled to inform police & give over any & all information belonging to the bank .. & she did not .. (??)
        There was a crocked man ..

  7. raxadian says:

    HSBC is gonna leave my country? Good.

    That’s just one example, if I linked everything I would most likely get caught by the spam filtering.

  8. Brant Lee says:

    It’s hard to believe anyone on the wrong side of the tracks in Hong Kong would still have left many assets there. We know what to expect from China and but now they know what to expect from the rest of the world powers. This was the major yardstick to cross for the Red Party to move ahead onto Taiwan, the Philippines, SE Asia, etc.

    But, it’s still so glorious for US Corporations as we can see from the packed overseas containers filling the retail isles near you or delivered to your door. So surely another decade of the same won’t hurt.

    • Lynn says:

      Yep. Would not be surprised to find out much of those monies and assets were liquidated and re-invested in the US stock market and US, Canadian and British RE.

      Which could explain some things, depending on how much that is.

      • Lynn says:

        Probably effects some on mainland China too if they have connections to HK banks and businesses. At least- the fear will effect them even if no follow through.

    • Thomas Roberts says:

      As HK is often a portal into the mainland, many have to keep money and assets in HK to not anger the CCP, right now many companies with assets and factories on the mainland know that there is no chance for them to get their money and assets back from the mainland. So they keep most of the Chinese factories/businesses open (sunk cost), but, downsize and reduce new factories, while they slowly plan their exit or to downsize. I’m sure the CCP is watching which companies and individuals pull out of HK and have access to all transactions taking place there.

      For companies with money and assets purely in HK with no exposure to the mainland, it’s pretty crazy to not relocate, they might be in the planning stages for pulling out though.

    • Mira says:

      India has become a grateful recipient of manufacturing companies moving to them .. China may be too expensive today.

  9. Jay says:

    Things are going to come to a head when China tells HSBC to freeze overseas bank accounts in the US and Great Britain. Remember China considers the new law applies worldwide. So anybody in the U.S. could have their accounts frozen. If they violate their new law.

  10. MiTurn says:

    “HSBC’s growing dependence on China also comes with big risks attached.”

    A big roger, and so true with many companies wanting to access the huge marketplace that mainland China represents.

    Money talks in every language. And in China it’s a Faustian bargain.

  11. Javert Chip says:

    Other than a crap-load of compliance issues, I never understood why this bank didn’t split into 3 banks (US, European, Chinese), sell the western portions, and go wallow in the communist Chinese version of banking.

    Yes, there is money to be made “banking” for governmental crooks, thugs and other goons.

    • Thomas Roberts says:

      You have to think of the executives, large companies make most decisions based on how the executives can make the most money for themselves.

    • Mira says:

      If the shoe fits & in the case of the HSBC it may very well.

    • roddy6667 says:

      HSBC in mainland China is a different bank than the one in Hong Kong or the US, or many different countries. They are all chartered in the countries where they do business, and must conform to the laws in that country. There is an HSBC app for every different country. Transferring money between HSBC in different countries is the same as sending it to a different bank. Worldwide, you are able to use the ATM network without fees, but other than that, the only thing in common is the name. It’s like a collection of different banks all owned by a single parent country.

    • Jay says:

      I give it less than five years, there will be an internal war in HSBC forced by Hong Kong and China. The headquarters will be moved to Hong Kong. The assets in Great Britain will be sold off. They are all ready starting to get out of the U.S.

  12. Mira says:

    For me it was this ..
    1. I do not know Greek law.
    2. The files ‘said’ to be stolen by Herve Falciani led us to believe that the HSBC Geneva branch had little or no security .. how many files did Falciani take out of the bank without detection .. way to many ??
    Surely there was a security system ??
    And therefore .. is it possible that Falciani had an accomplish in the security department ??
    But no .. he was a loner whistle-blower.
    Really .. ??
    It is entirely possible that rogue elements in the HSBC Geneva Branch were complicit & Falciani was in collusion with them or he was the stooge .. the patsy chosen to get the files out of the bank.
    At every instant MS Lagarde .. when in procession a portion of the files .. it was her duty to hand them over to police immediately & she did not .. instead she offered them to the Greek government .. for free of course ..
    The Greek government .. at every instant should have called in Interpol to be present at the hand over time & they did not.
    The Greek government then proceeded to prosecute the Greek Clients of the HSBC Geneva branch for TAX EVASION ..
    Now here’s the thing .. these files are illegally obtained .. they are the property of HSBC bank & cannot be used as evidence in a court of law .. because they are stolen & not obtained legally with a warrant ..
    This is the fact that I am not certain of .. because I am not familiar with Greek law.

  13. nick kelly says:

    China dumped Marxism and Maoism but the CCP has never apologized for among other things the Cultural Revolution, the excesses of which are barely known in North America. At the height of the Mao madness, the CCP tried to supplant the family as the basic human unit. Dining together as a family instead of communally was seen as ‘rightist’ along with the slightest individuality in dress.

    Without calling Xi a throwback, it seems odd that the CCP would publish ‘Xi Thought’, as though it wasn’t embarrassed to remind the world of Mao’s Little Red Book. And Mao’s portrait is still on the currency.

    I’m a great admirer of the hard working Chinese people and attribute their progress to them, not the CCP. (The CP railway put through the Canadian Rocky Mountains in the 1880’s was hacked out by Chinese with picks. They were buried at track side until Chinese Benevolent Societies disinterred their bones)

    The true cause of the progress since Deng’s liberalization was in fact dumping Mao/CCP thought. It is amazing what a horse can pull if the wagon is not mired in mud.

    There are also Chinese people on Taiwan, with a GDP per capita 250% of the Mainland (about 27K vs 11K , IMF 2020 )
    If the Nationalists had won the civil war instead of Mao’s Communists, China would have become the world’s largest economy 20 years ago.

  14. a.hall says:

    Ah, Well, there`s always Laundering Mexican Drug Money to fall back on.

  15. tommy runner says:

    ‘ Just two out of 14 senior board members are Chinese, though pressure is beginning to rise on the lender to reorient its governance’.
    ha, well done nick.

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