As HSBC pivots further to Asia and away from the West, its business in China gets more and more complicated.
By Nick Corbishley for WOLF STREET:
HSBC, headquartered in the UK, is first and foremost an Asian bank. The Hongkong and Shanghai Banking Corporation Limited cut its teeth in the 19th century in Greater China. In 2020, its Mainland and Hong Kong operations accounted for 39% of its annual $50 billion in revenue, while the United Kingdom, its second largest market, brought in 28%. The bank is now selling off its retail banking units in France and the United States and scaling back its presence in some emerging markets in order to accelerate its eastward pivot.
But there’s a problem with this plan: Its success rests largely on the bank’s ability to maintain good relations with the Chinese government. And that is proving to be a tough proposition.
Relations have soured significantly over the past two years after it was revealed in 2019 that HSBC had ratted out Chinese telecom giant Huawei to the U.S. Department of Justice for breaching U.S. sanctions on Iran. The information provided by HSBC led to the arrest of Meng Wanzhou, Huawei’s chief financial officer and daughter of the company’s founder, in Vancouver in 2018.
As geopolitical tensions have escalated between the US and China, HSBC has had to walk a tightrope in its relations with China on the one hand and Washington and London on the other. The lenders’ travails reveal a core challenge for multinational firms operating in China: the market is vital to their growth prospects, but Western firms doing business there increasingly risk being mired in the ratcheting tensions between Beijing and the West.
But given the size and growth of the market, many big global banks have decided to continue expanding in China, whether organically or through acquisitions. HSBC Holdings PLC, Standard Chartered PLC and Citigroup Inc. have all unveiled plans to beef up their wealth management operations in China, targeting the growing middle class. But with net profits for foreign lenders falling precipitously and Beijing demanding that foreign companies toe the line as the US ramps up sanctions on China, it’s getting more and more complicated.
Like its British arch-rival Standard Chartered, HSBC has already thrown its support behind China’s imposition of security legislation on Hong Kong. It has also frozen the assets of pro-democracy politicians and protesters, at the behest of Beijing. It is also suspected of being among seven as yet unidentified lenders that recently froze the accounts of Apple Daily’s owner Jimmy Lai, forcing the closure of the pro-independence newspaper.
But HSBC still remains in Beijing’s bad books. Citing the Huawei case and HSBC’s initial lackluster support for the security law, the People’s Daily, the main mouthpiece of the Chinese Communist Party, cautioned in June 2020 that HSBC risked losing much of its business and paying a “painful price” for having gone “to the dark side.” In August Chinese regulators in Shanghai fined the bank and three senior HSBC bankers on the mainland and publicized their names. Chinese regulators have also reportedly stopped holding one-on-one meetings with senior HSBC bankers, according to two mainland employees at the lender cited by Reuters.
The Chinese government also appears to have sidelined HSBC’s investment banking operations in the country. Invites from Chinese companies to pitch for investment banking work have begun to wane, while several state-owned companies have become non-committal on previously firm plans, according to a special report published by Reuters last week:
Among those who’ve shut out HSBC is Beijing-based China Energy Engineering Group Co., Ltd., a Fortune Global 500 construction conglomerate, which previously used the bank to provide guarantees for international projects, among other things. Early in 2020, the construction giant’s senior leadership sent an e-mail internally instructing employees to avoid HSBC completely, said two executives at the company with knowledge of the matter. The reason for the move, one of the executives explained, was the Huawei incident.
In total, Reuters has identified nine state-owned enterprises that have ended or cut back on their business with HSBC as a result of the bank’s falling out of favor with Beijing. In response to Reuters’ report, HSBC said in a statement: “we do not recognise Reuters’ description of our client relationships.” But Refinitiv data cited by Reuters would seem to suggest that HSBC’s investment banking operations in China have indeed suffered.
The bank’s ranking in terms of market share for syndicated loans in which it was a lead lender slipped from sixth to ninth. The value of its share of syndicated loans to all Chinese companies, including state-controlled firms, plunged by around 55% in 2020, to $3.2 billion from $7.2 billion in 2019 while the market overall shrank by just 4%. Standard Chartered PLC, which has a similarly long presence in the region, saw an increase in total proceeds from its China syndicated loans in 2020.
HSBC recently suffered another setback when it was forced to apologize to customers in Hong Kong after an update to its online and mobile banking terms stoked fears over overseas access to its services in the financial hub. Access to funds in the city is becoming a growing concern as thousands of Hong Kongers up sticks for Britain, Canada and other places as China consolidates control of the territory, taking their money with them. On June 22, a Twitter post shared a link to updated online and mobile banking terms on HSBC’s website in which the bank appears to say that customers may not be able to use online or mobile banking outside of Hong Kong.
HSBC was quick to deny the reports, reassuring customers that it had only combined terms for its Internet banking, mobile app and mobile security key into one document and that they would “continue to have access to banking services through online banking and mobile banking outside of Hong Kong SAR”. But by then the bank had already suffered yet more reputational damage in its most important market. A number of commenters on LIHKG, one of Hong Kong’s largest online forums, said they plan to transfer funds to other banks.
As these problems continue to stack up, HSBC has little choice but to tough it out. It has already staked its future on fast-growth markets in Asia, particularly mainland China. But there are risks in tying its fortunes to China. Despite its long, storied history of influence in Hong Kong, HSBC is now a lot more dependent on China and Hong Kong than vice versa. That makes it exceptionally vulnerable to the whims of the Chinese Communist Party, which is sending a clear message to the bank’s management: If it doesn’t toe the line, it could be cut off from its largest market. By Nick Corbishley, for WOLF STREET.
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Dance with the devil and dont be surprised by the outcome. We all make choices.
Somewhat banking related.
Found out yesterday that house next to my parents closed. Sold for $190K. Two years ago it might have been valued at $125K.
Found out the new owners got a loan from the biggest credit union in the state. Put 5% down. To me this is crazy. The home has went up 5% in value in the last month or two. What kind of secure lending is that? The top must be very close.
Of course it’s nuts, but most of the opinions I read (including here) have somehow gotten the idea that lending standards are strict just because of the required credit scores and income verification.
Subprime lending in the US is alive and well, thriving practically. And now, credit scores have risen to record highs despite the massive number of mortgages that are delinquent since most delinquent mortgages were put into forbearance programs, at which point they no longer count as delinquent, and as a result, credit scores have risen, to the point where credit scores have become meaningless.
The new ‘subprime’ mortgage queen is FHA– enticing people who can’t afford to buy a house to buy one anyway with unbelievably lax terms:
3.5% down payment, with additional down payment assistance also available
Minimum credit score of 500
FHA loan limit between $356,362 and $822,375
Borrower only has to live in residence one year– then can turn it into a rental
interest on a 30-year fixed-rate FHA loan is between 2.620% and 3.490%
No minimum salary requirements for borrowers
Have those two bills passed?
1. One that would give thousands toward down payments for first-time homeowners (extra for socially and economically disadvantaged)
2. Up to $15k in tax credits for first-time home buyers
It’s crazy to encourage home ownership when prices are so high. That is exactly how people get underwater. Helping people is only great when it actually helps! From my understanding, people would have to pay this back if they don’t live in the house long enough.
That’s not an isolated instance. Homes and 2nd homes seem to have jumped 15% in the last six months, even in undesirable areas that were stagnant prior to this FOMO frenzy.
Somebody needs to reign in this Fed Reserve Board, which seems to think financial instability is a good thing.
that’s why I don’t invest in the USA ;-)
Want to be a Global business? Get used to serving many belligerent, rational and irrational masters.
HSBC knew full well that the CCP outgrew any need for HSBC.
HSBC ? Fools – amongst the many serving the Chinese Dictatorship.
“If you get in bed with the devil, you better be ready to f_#k”.
– Tom (Big Daddy) Donahue RIP
[who opened every show with “I’m here to clean up your face and mess up your mind.”]
given misteps prior to CCP taking over Hong Kong
HSBC is dead man walking
surely the CCP will wait til there’s enough cash for them to take
just ask didi how it’s going
besides those in Davos won’t be doing business with HSBC if they don’t have to
and they don’t have to
Touché
HSBC laundered money for cartels, terrorist groups and embargoed countries in USA.
Thanks to the criminal trio – James Comey (special board member), Loretta Lynch (US attorney) and Eric Holder (Attorney General), HSBC got off with just 1.2B fine, no banking restrictions and no one going to jail.
How Deliciously Ironic — the Hong Kong & Shanghai Banking Corporation’s singularly most important client is waging war with the free market leaning Hong Kong & Shanghai establishments…PJS
You mean private monopoly leaning Hong Kong establishment. It is no really a free market when you have a monopoly.
Monopoly? In banking? In Hong Kong? Not true.
I’m talking about almost every other business in Hong Kong. There is also a difference between banking and consumer banking
Trying to please China while at the same time trying to please the establishment I. The west is like having two masters, one is the devil and the other is satan
Exactly. And it’s not as if HSBC is some innocent actor. Come on people, it’s another bank, willing to do whatever to earn money.
“Stern’s actions as a whistleblower at HSBC resulted in the London-based bank shelling out a record $1.9 billion fine for allowing itself to be used to launder drug money and violating sanctions law by doing business with customers in Iran, Libya, Sudan, Myanmar and Cuba.”
In addition to that $1.9 billion fine, HSBC didn’t exactly ingratiate itself with the US Government during the housing/mortgage crisis either.
“HSBC was fined $470m for “abusive mortgage practices” in relation to the 2007-2009 housing crisis in which millions of people lost their homes.
The British bank on Friday agreed to pay the fine to settle US federal and state investigations into alleged abuses against homeowners struggling to keep up with mortgage payments during the 2008 global financial crisis.”
Yes, indeed. HSBC’s money laundering scandal settled in 2012 for $1.9 billion was sufficiently egregious as to merit is own Investopedia entry. HSBC laundered money for, amongst others, Mexican and Colombian drug cartels, such that the teller’s cages in the branches most active in the trade were remodeled to more readily accommodate the enormous volumes of cash. This activity took place during the period when Stephen Green, an ordained minister of the Church of England, was chairman. Oh, the irony…
YEP!
And got away with a ‘cost of doing business’ on the wrist, considering homongous profit made decades earlier. Pay the fine and then business as usual!
TBTF banks own the regulators and the Congress.
“Its success rests largely on the bank’s ability to maintain good relations with the Chinese government.”
This is true for any Western company doing business in China. Ask Elon.
China saved Tesla and made Elon the top-3 richest man in the world. We can imagine what the real cost is, for Tesla. Hint: Elon right away had a brilliant idea to open a Tesla “design center” in China.
It was just a coincidence that China somehow unveiled two rocket designs similar to SpaceX, right???
That is true for any company in any country. Having a bad relationship with the state outside pure money issues is a fast way to go down
Another clan of educated incompetent management kept in charge by the central banks.
Lets see….China is a big country……but…..their growth is starting to slow and……
The combined GDP of Europe is larger than China…..and……Europe does not derive a portion of its GDP from endless peasants working small plots of land and having little excess income.
The US GDP is larger than China by about one third and again…..see Europe.
India, Brazil, Mexico etc are growing relatively quickly.
Not to mention when you are a visitor in any country you are subject to nationalization or government unrest or being treated unfairly.
China is also subject to the import of vital materials over oceans it does not control.
So if I were the leader of a bank who would I bet my future on…..
After all….its all about options and stock repurchases…..daddy did it all…..just dress up in a $5000 suit and keep politically correct. Who needs to think or be accountable. Using reason…..nah.
US GDP is indeed bigger, but competition is also a lot fiercer. When I think of banks in the US, I would think of BofA, Wells Fargo, Chase, etc. No doubt HSBC has been trying to gain a foothold here for a long time, and they are obviously not seeing results.
On a similar note, Citi sold it’s retail banking unit in Japan to a local player and likewise they are going to close down their retail banking unit in South Korea.
There’s no guarantee you will be successful in any given market.
I had a mortgage serviced by HSBC for a couple years (though Fannie Mae was the actual holder). They offered the best rate for a re-fi at the time, but they were the absolute WORST to deal with (whatever the opposite of ‘customer-centered’ is). I was delighted when the paper was sold to another servicer.
Absolute value GDP comparisons, particularly in US dollars, is extremely misleading.
Yes, the average among Chinese is still significantly poorer than their averaged Western counterparts – but said Chinese pays enormously less for food, for housing, for medical care, for transportation, for education, etc etc.
And while the US is the 3rd largest nation by population, China is 2nd and more than 4 times larger.
It is also highly misleading to try and conflate the business opportunities in China with india, Mexico and Brazil:
India started at a better point from the 1950s to until around 1990 – but history shows clearly which nation has been more successful in modernizing and improving itself.
Ditto Mexico and Brazil – the slide in Brazil and other South/Central American countries in relative progress has been going on for something like 100 years now. The Mexican currency used to be the standard against which the US dollar was measured in the 1800s – clearly that is no longer the case. And this doesn’t even get into the hyperinflations which Mexico, Brazil and other South/Central American countries have experienced in the past generation.
Love them or hate them – China is where its at today.
c1
Spot on.
I heard CCP anniversary celebrations discussed on RT today. China is now so confident of their restored position in the World that they will no longer tolerate being lectured by ‘failing’ nations on how to run and manage their country. If they can keep delivering for their people I see no breaks in the trends of the last 25 years.
Great news! I won’t shed a tear for HSBC.
China will be the world’s next reserve currency!!!
Except you can’t use it or transfer it outside China…
“mobile banking terms on HSBC’s website in which the bank appears to say that customers may not be able to use online or mobile banking outside of Hong Kong.”
I don’t understand why HSBC didn’t get more traction here in the US. They did everything a respectable western bank does: money laundering for drug cartels and terrorists, manipulating forex rates, sexual harassment, etc.
What does a bank have to do anymore to get accepted?
Michael Gorback,
“What does a bank have to do anymore to get accepted?”
— Setting up millions of unauthorized “fake” accounts that clients don’t know about.
— Packaging unneeded “automobile collateral protection insurance” (CPI) and “guaranteed automobile protection” (GAP) into auto loans, without customers knowledge.
— Fee-overcharging by the wealth management division.
— Overcharging clients on foreign exchange rates.
HSBC should have consulted with Wells Fargo for advice; they know how to do this.
Hey don’t knock Wells Fargo. I do all my banking with them. So they are a little sketchy once and a while. They’ve treated me great! Even better than Wychovia who they bought out after they went under in the GFC. I’ve never had a single problem with them for the last 13 years. Great customer service and polite employees. They are based in Wolf’s home town of SF. They’ve been there since before the Civil War.
Well Wells Fargo Retirement lied to me. Once I turned 59.5 I wanted to move my 401K to an outside IRA (E*Trade, been with them since 98), they said as long as I was still employed with the same company I couldn’t do it. I was tired of getting about 1/2 of the market returns from their crappy funds. They would let me move some of it into one of their self-directed accounts for a fee though. Took a year but I finally did it. Well, 90% because they lied again.
Most of their funds you couldn’t trade out of unless you held it for 90 days without a penalty. Recently I did a refi, just for kicks I checked WF. Best they could do was 3.19% with buying a point. I had an 816 credit score. Rocket Mortgage did it for 2.75%.
Hey, don’t you diss my bank. They are about to get authorization for share buy backs and raise dividends.
Hmmm, actually, that doesn’t do me much good now that I think about it.
As for HSBC, couldn’t happen to a nicer bunch. And depending on how things go, the Queen might have no use for HSBC either soon. She has RBS.
That’s some nostalgia for me. In 1963 my first job was at the Midland Bank at their original head office in Leicester.HSBC reversed into them in the nineties and a reputable name was lost. I was shown a check going through the system drawn on Coutts & Co by the ‘Keeper of the Privy Purse’. I was informed that that was one of the Queen’s accounts. Quaint.
Bill Peat, the “P” in KPMG, used to personally audit the Privy Purse for King Edward the seventh, apparently. KPMG have served seven monarchs of the UK so far.
Wells Fargo is in a class by itself. They must have compromising photos of every SEC and DOJ official in the country to survive.
I always found Wells Fargo irritating. I had some type of account way back when for a while, but they never seemed to be competitive so I closed and avoided.
So when Wells Fargo bought my paper for house mortgage, I was not happy. A couple times when I had to go in and talk to them at some branch, they tried to super-hype me to get some kind of other loan — it was weird. I’m sure they were disappointed when I accelerated payments and paid off many years earlier.
That was like, 10 years ago or something. A couple months ago I got a notice that Wells Fargo had made a “mistake” in their fees for the mortgage. So I went through the claim process and got a few bucks. Not really worth my time, but gave me a nice feeling.
They cater strictly to the Chinese. HSBC just opened a new branch in Markham, Canada about 2 months ago at highway 7 and 16th avenue.
HSBC has 3 branches on Vancouver Island including in nearby Campbell River, but I have never met anyone who uses them. I think my local Credit Union has 8-10 branches and is quite profitable. Furthermore, they don’t care about our political views, what we think about dissent, or our nationality. Just saying. Surprise surprise, they don’t even set up fake accounts or play with rates….like overcharging when they think they can get away with it.
Every year I even vote on the slate of new directors. What a concept…owned by and for the members.
1) Ten credit union did little to grow Vancouver economy.
2) For years, while Alberta WCS slumped, HSBC transferred Chines wealth to Vancouver & Canada, via HK.
4) Canada have lost it’s main interphase to banks and RE .
5) Taxing empty apartments to deflate Vancouver RE is bs.
6) Losing the cash flow will deflate Canadian ego, especially with a strong dollar.
7) The TM pipeline will bring deflated Yuan to Canada.
In the late 1980’s HSBC bought Marine Midland Bank, a big regional NY bank, that I worked for. Wolf may remember them as a big lender to the auto industry. The auto loans turned out to be a big bag of doodoo and HSBC also managed to screw up a mandatory fed funds transfer upgrade by doing most of it out of Hong Kong. It never had much traction in NY afterwards.
Hilarious…..thanks…..I almost fell out of my rocking chair. Of course I have had two shots of Jim.
Come on Guys, RBS are the undisputed World champs by screwing over viable small businesses to get their hands on the hard collateral assets.
RBS is CFG largest share holder. So, the BOE rule CFG.
Great article Nick, good work.
“HSBC risked losing much of its business and paying a “painful price” for having gone “to the dark side.” ”
The only “dark side” in this equation, at this juncture of world politics, is the CCP.( not the Chinese people).
The Chinese people don’t equate and never will be equated to the abhorrent regime that curtail their freedoms and political and social aspirations ( never ever).
One cannot blame the HSBC, for acquiescing to the whims of the increasingly bellicose Communists .
As various western governments and institutions demonstrated their weaknesses in accommodating and enlarging this ridiculous game of appeasement, which ultimately is showing its fruits in the outright and outrageous encroachment into the living space of various asian nations.
The communist party’s mistake in translating this weakness of western governments to put it under sanctions ( just as they’ve done with Russia) , have emboldened and given it extra ammunition to slaughter its population’s rights on the altar of its Marxist world domination ( dreams).
If anything serves to understand the ( utter) stupidity of western corporations’s approaches to doing business in China, one must go No further than NORTELL’s experience and demise at the hands of HWAWEI.
the multi billion dollar Canadian company, was gradually robbed of its patents, stripped and out bid from its commercial markets and customers and to top the cake , its engineers poached and incorporated into hwawei’s hoards !!!
This transfer of technology has been occurring ever since Uncle Sam’s decision that Russia is our main enemy and we should do all we can to destroy it!
As the events in the last three decades have shown, we have failed miserably in both tasks.
Russia is now stronger than its USSR’s “ large jacket”!, and we couldn’t entice China to open up and engage the world on equitable and decent free and democratic exchange.
Big clap to the failed policies, and an even bigger clap for what’s to come in the next five years.
In the good old days, you could always identify if a country was not a democracy, because they included “Democratic” in their official name – e.g. “Democratic Republic of Germany” for the very undemocratic East Germany.
Nowadays, I guess you can extend that rule to identify if a country is not communist – e.g. “Chinese Communist Party” for the non-communist and very authoritarian dictatorship that runs China
Technically ‘communist’ China is a fascist state because it allows the private ownership of property and businesses.
Either way, it is surely totalitarian.
AK
I’ve been trying for years to get a handle on what ‘Democracy’ actually means.
Is it putting a cross in one of two boxes every 4or5 years?
Is it having a poor guy at the end of your street who has to listen to every complaint you make and has to try to do something about it to keep his job?
Is it having hands up counted in a rabble on the street?
I don’t Know. David Graeber takes a good stab at it.
Kudos for mentioning NORTELL! RIP.
Interestingly, HSBC here in Canada does not allow their online brokerage customers to purchase shares of companies that openly invest in bitcoin or ETFs, despite these being legal, listed entities. They would never give me a straight answer why – even their employees are prohibited from owning – which I think is an an infringement of their rights. I had suspected it might be at the behest of Beijing, but if so, it doesn’t seem to earn them much credit with the regime.
“they would never give me a straight answer why”
I can give you some reasons why. Bitcoin, in essence, is shadow banking. Bitcoin is used in drug transactions and money laundering. ” Bitcoin traders are using up to 100-to-1 leverage are driving the wild swings in cryptocurrencies”. In other words, companies trading and speculating in bitcoin are extremely risky. Perhaps bitcoin doesn’t fit too well into the framework and restraints of Basil III.
More money laundering across the globe using investment in RE.
Read/Watch ‘Panama papers” Have you wonder why so many little banks in the Carribean,Panama still surviving. Most of the currency notes got hoarded by Drug cartels++ than in circulation!
Bitcoin is getting old. Monero is new crypto demanded by ransomeware recently!
Bitcoin is a Ponzi scheme that will end up going to zero. Why would you, as bank, want to see your customers lose their money. You don’t* because then you can’t earn fees if they don’t have money.
*Except to the bank.
Bank of Montreal Investorline won’t let you buy csav on the tsx but they will let you sell it. No lawsuits against the company so far as this should be deemed illegal.
When I worked on Wall St. you had to report all your security purchases to your firm and could be restricted from certain purchases, if they conflicted with the firm’s or client’s interests.
I’ve seen grocery stores frown on employees shopping at other stores.
Ahh the message sent to those who recognise you. :-)
Pretty common policy in the world of non union labour. My aunt worked decades at Canadian Imperial Bank of Commerce (CIBC). It is a terrible company, a terrible multi national bank. She thought she was doing ‘the good work’ until she got close to retirement and thought about all the free overtime she ‘donated’ over her life while the execs pulled down millions and left with golden parachutes.
I work for HSBC. I bought Bitcoin Grayscale Trust last year. Sold this year. I had to go through Compliance process, but I was not restricted from transacting.
Just Standard Banking T&C’s stuff: If one does not like, one just does not sign the contract, f.w.i.w. bank employees are *Especially* restricted in the kinds of gambling and reckless borrowing they are allowed to do.
They can usually get a cheap mortgage and insurances as a work-related bennie, but, they can only get a mortgage, sometimes any loan at all, at their place of work. Banks don’t want employees with money problems and login keys to SWIFT.
When I worked in NY banks they had a rule that you had to take 2 consecutive weeks of vacation every year. This was done to insure you weren’t defrauding the bank. Being away allowed them to settle up for two weeks with you not being around. It was a pain for those of us who only got 2 weeks vacation. Most of us knew ways the rule could be circumvented, so it was just more bureaucratic bs.
HSBC is just following the rules of the “Know Your Customer” policy that began after they got slammed for allowing drug dealers to set up accounts for laundering illegal money.
I wonder what bank the CIA uses to launder all the cash from the operations in Afghanistan and South America?
The whole globalFinancial system is a sham, in many ways, A needed reset couldn’t come sooner.
If DEBT produce ‘growth’ we all would be rich!
They were a big counter party to AIG in 2008, so another Bailout Beauty.
HSBC = Hardly Swiss Barely Chinese.
They are not Swiss enough to protect their clients’ confidentiality. At the same time, they are not a Chinese bank either ;)
My impression of HSBC having worked there only a very short time, is the British staff was a front for the west, and the money and operation was Chinese.
The Swiss have not been protecting their clients’ confidentiality for a long time now.
A person who is not a U.S. citizen and lives outside the U.S. can be arrested for violating U.S. laws? WTF?! someone please explain.
No country is worse in thinking it’s laws apply outside its borders than the US. Someone, the US has concluded it has a “national interest” in every square inch on the planet.
The US has that big dick energy that allows it do as it pleases. The laws are there to paper over the human rights abuses committed and for fake news to spin a narrative.
This idiotic game has been running for more than 100 years without any change.
I don’t know why it’s so hard to understand. China is a normal country. China works for China. China does not want to help us grow. China wants to help China grow.
Any company that gets involved with China MUST end up doing what China wants, and MUST end up harming its own country. It’s unending commercial treason.
At least Nike admitted it openly.
That sweet, sweet slave labour… nothing helps a company drive profits better. Companies are mad they cant use slaves in merica so they go to a place that will accommodate them.
It is about time we started voting with our money.
Exports to America are only 15% of China’s total exports. Guess what would happen to the Chinese economy if they lost 15% of their exports? Nothing. It came close in 2020 when the worldwide economy slowed down from the pandemic. Life went on. People went to work, kids went to school, internal travel resumed. The GDP increased over 6%. America is not in a position to “vote with their money”.
roddy6667,
Many of China’s exports to the US are transshipped via other countries. Some of it for solid business reasons: for example, shipping semiconductors and components to Thailand for assembly into hard drives that are then shipped to the US. Or auto components that are shipped to Germany where they’re assembled into cars that are then exported to the US.
Trade is immensely complicated, and the headline figures can be misleading.
I vote with my money every day. I no longer knowingly buy Made in China products. If I can’t find an alternative product, then I generally try to do without the item.
I like HSBC; been using them as our offshore account for years. Pluses…. they actually have a great customer support system, they are truly global. They’re growing in Africa (where we’re based); another large growing market for them.
There’s the old joke that HSBC’s Norman Foster designed headquarters in HongKong can be disassembled in the night like lego and quickly relocated.
Lately the CCP is going all out to neuter if not destroy establishment businesses in Hong Kong, kneecapping them versus their mainland rivals; Cathay Pacific being another prime example.
They seem to have few qualms about devastating Hong Kong in the process of imposing dictatorial control over it.
The National People’s Congress authorizes the Hong Kong Special Administrative Region to exercise a high degree of autonomy and enjoy executive, legislative and independent judicial power, including that of final adjudication, in accordance with the provisions of this Law.
Until CCP didn’t. HK was perhaps a learning exercise to be used when Taiwan is re-administered
HSBC will not be allowed to play for very much longer IMO. CCP has a history of punishing those who oppose its authority
It’s not just HSBC. For many years now, growth strategies of western companies have involved growing in China because there isn’t much potential left in the West. But what if China says thank you very much, we are keeping that business for ourselves now?
Previously, western companies expanding in China was of great benefit to China because of knowledge transfer. But after a few decades of “educating” China how to move up in the value chain, it’s all diminishing returns for China now. And if the geopolitical situation keeps deteriorating, they will at some point just pull the plug.
And yes, that will be very costly for China too (initially), but things work different in China. They think strategically and long term. They figure out where they want to be 20 years from now and base their policies on that. They are not on a 2-year election cycle. And they completely control the narrative. They will make the population put up with it by blaming external enemies. Western companies should hedge their bets.
China can easily burn it’s bridges. Growing markets of the future are in Africa and the rest of Asia (Indonesia/Philippines/India)….China is heavily invested all over the place, but those fast growing democracies are quickly waking up to what China’s game really is — global domination; the push back begins.
China needs 1) markets; and 2) natural resources. Africa has both. And the Chinese approach Africa without any residual guilt in regards to slave trading or colonialism.
No paternalism. Strictly business, on their terms.
I’ll take the “under” on Africa’s economic future and nothing to do with their ethnicity either.
AF,
I concur. I’ve been there. A seemingly hopeless situation. The Chinese will soon “own” the sub-Saharan parts.
I would never put my faith in a centrally run economy.
How soon we forget the Soviet 5 year plans and the Great Leap Forward.
China is going to learn that economic control is like squeezing mud. The harder you squeeze the less you retain.
I agree with you. But China is less centrally planned than you might think. That is the big reason why the Sowjet Union failed and China became a huge success story.
The USSR was really planned top down in great detail, and as such it mismatched reality on the ground. In China on the other hand, much more power is left to local authorities, so they can make their own plans based on local conditions. Of course, it still has to be consistent with the top down strategy and targets, but there is a lot more room to do things right.
Having said that, I’m definitely a sceptic where it comes to China. There are massive imbalances in their economy (and society) that are caused by their chasing of government targets. I would have expected the wheels to come off a lot earlier and have been wrong about that, so I now have to admit that there appear to be some advantages to their system. The results are showing, I hate to admit. Though I still think they are set up for a big crash (but so are we).
Also, we have to ask ourselves how centrally planned our own economies have become, with the Fed setting the most important prices in the economy (interest rates) and many corporations have become governments in their own right given their monopolistic powers.
Their long term thinking kind of failed when it comes to their demographic problem. They’re trying to pull a U-turn on the one child policy but it may be too little too late.
It’s hard to be a dynamic economic juggernaut once 60+% of the population hits the elderly and retired phase.
YS
“educating” China
For decades the Chinese have sent students to Western universities where they have sat beside students from anywhere so long as the fees got paid. It’s now a strategic issue where many educational institutions rely on foreign student income.
Education is an industry and, for us, it’s one of the best exporters.
What the people DO with the education is independant of GETTING the education.
1) China is a bubble.
2) To reduce risk banks constrict subprime loans, raise interest on
risky loans, charge highers fees, higher points, limit loans sizes …
3) Those who fail in China today will be lucky tomorrow.
4) AAPL is caught in euphoria.
5) If HSBC survive the stress test they will not need a bailout. HSBC will be fine with less Chinese crap.
1) Since 2008 EFFR was pinned down to zero until Dec 1015, creating
bubbles.
2) SPX up from 666 to 1,200, NDX to the dot.com bubble, RE Woke and the SSEC bubble. Zanet decided to preempt.
3) In first counter attacked, in Dec 2015, EFFR was raised to 0.37. Results : SPX dropped to the Jan/ Feb 2016 lows and WTI to 26. Fed 0:1 Bubbles.
4) After Trump election EFFR was raised in stepping stones to 2.4% and mortgage
rates up to 5% in Nov 2018. But the 10Y didn’t care : gravity to NR kept it down.
5) The [US 10Y – EEFR] inversion reached : (-) 0.54 in Aug 2018.
6) Plunge #1 : in Dec 2018 RE fell 13%, mortgage rates down to 4.5% from 5%, SPX down 20%, but EFFR kept rising to 2.4% and stayed there for six months, until July 2019. US markets survived the stress test.
7) Plunge #2 : in Mar 2020 RE was down 40%, mortgage rates to 3.3%,
SPX down 36% and EFFR down to zero, completing a nine years round trip.
8) Few wise old men were encouraged to invested when fear is high and prices were low. US markets survived the stress test. The Fed 0:2 bubbles.
9) It worked because EFFR stayed at 0.05 until a month ago and the Fed gave up on using monetary tools
10) RRP $1T provided good collateral. Hopefully the hypo men aren’t clogging the O/N lending, because they smell a stench.
10) $1T RRP is better than bailing out $17T in bank’s accounts, when US gov
debt reached $28T, before the $6T transformation.
11) The tree’s hat has no potato salad.
12) No potato salad, buy the dip
Zoltan Sees Reverse Repo Hitting $2 Trillion In Weeks: What Happens Then!?
zh
Credit Suisse’s #Zoltan Warns of Trouble Ahead in Money Markets
Zoltan Pozsar worked at the Federal Reserve and U.S. Treasury. Now he helps Wall Street navigate the maze of financial plumbing.
WSJ
The US GDP is bloated by fictitious capital. The medical industry is bloated. So too is education. Swapping spit in the markets is part of GDP. Cleaning up pollution is in the GDP. I have no clue how much real, productive capital is in the GDP. I think China has a larger real GDP. How many super fast trains are in the US? Zero. How many new cities have been created in the US? Zero. How many manufacturing industries are expanding in the US? I think Putin was on to something when he said that the best way to destroy a nation is to adopt neoliberal economics.
there are other good ideas :
12) Since the monetary tools failed, raise a min 10% tax on
the FANG. It might be too late, because if the hypo guys are clogged. The bubbles will deflate without gov support.
13) China space agency director, Mr Tau, assault two scientists,
badly injuring both, age 85 and age 55, because they refused to recommend him as a member of the international aerospace academy
in Stockholm.
This is a political tempest in a TP. All banks all over the world have been effectively nationalized, and are now weapons of financial destruction. The real problem for the Fed is they don’t control interest rates in the entire banking industry, which RRPO does help them accomplish.The difference between free enterprise and free markets is China’s fulcrum. The US is not far behind. All banks are kosher potato salad.
It is a wonder that HSBC is allowed to operate in China at all, given that it was set up by the elites that controlled the opium trade in the 19th Century, including the Iraqi Jewish family of David Sassoon who controlled the trade. After losing the two “opium wars” China was forced to legalise opium and cede Hong Kong on a lease. The bank was set up in 1865 and called the Hong Kong Shanghai Banking Corporation. It was set up to manage the vast sums of money the drug trade was making in China and the “treaty ports”.
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Hmmm…Reading this article in the context presented by Wolf the thought comes to mind:”Are they running to find a safe heaven?” Nick puts the risks on the table and shows that they are significant, where even minor dicrepancies can have significnat impact. Yet there seems to be a strong desire to integrate into the Chineasse economy and to benefit from the inherent stability…The only thought in mind is that the benefit, long or short term, must outweigh the risk. And then we come to the question:
“How big is the risk in the existing western finance markets that HSBC is running into a high risk poker game?”
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There are rumors going around that Wall Street is negotiating with the Chineasse Government in an effort to enter its financial markets. Is HSBC a pilot project?
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1) EFFR waterfall Chart : 7% in the 90’s, 5.5% in 2006/07 and 2.4%
in 2019. The failing monetary policy will lead to jubilees.
2) Next round : the EFFR hump : 1%. The [10Y – EFFR] inversion deeper underwater.
3) Beyond mortgage meat, few shadow banks go bk. WTF.
4) The gov will offer buyers : 0.00% mortgage taser, 5% down payment
5%-10% credit jubilee, home equity loans to save the market. If Zanet fail, the next EFFR will have an anti hump.
5) The online lenders cannibalize each other in subprime sector.
6) Demand for subprime loans by sound banks is sharply down since
2019.
7) Subprime loans are thriving in the used car business, because “CHOP/ CHAZ” will drag the whole world down.
8) Choke hypo ==> RRP + Repo !
1) US is an enigma : Xi doesn’t know who run the show.
2) Without US dozens of amphibious assault ships (mini aircraft carriers), with a dozen F35B & Osprey, in every ocean and sea, China would have ruled the world, today.
HSBC have used this play for years.
When they wanted to strong-arm the UK, they threatened to move their operations to HK and vice versa. Looks like China might just be saying “Bye”
I think the big message is that China is done trying to accommodate Western BS and is standing it’s own ground against all comers. See all the consumer boycotts of Western brands who make anti-China comments. Consumers not Govt.
It must mean they think they’ve got all their ducks in a row to succeed whatever happens.
HSBC had to make a choice, the US market, or the Chinese market. They are withdrawing from the US market.