HSBC and StanChart’s support for Hong Kong law provokes ire

Via Financial Times

HSBC and Standard Chartered have drawn the ire of politicians and investors in the UK for their public support of a controversial national security law China plans to impose on Hong Kong.

On Wednesday, the two banks released carefully-worded statements backing the legislation, which Beijing says intends to target “splittist, subversion of state power, terrorism or interference by foreign countries or outside influences” in Hong Kong.

“I wonder why HSBC and StanChart are choosing to back an authoritarian state’s repression of liberties and undermining of the rule of law?” tweeted British Conservative party politician Tom Tugendhat, who chairs parliament’s foreign affairs committee. “Where does this fit in their definition of corporate social responsibility?”

Andrew Adonis, a former government minister and Labour party peer in the House of Lords, wrote on Twitter: “Utterly disgraceful action by HSBC, apparently supporting Xi Jinping’s suppression of Hong Kong. I intend to take this up with the chairman and chief executive of HSBC in London. And with major shareholders.”

The stance of HSBC and StanChart puts them at odds with the British government, which has strongly criticised the as-yet-unseen law and has offered refuge to as many as 3m residents of its former colony in response.

The lenders have long walked a tightrope amid geopolitical tensions between western nations and China. Both have headquarters in London — and are regulated there — but make the majority of their profits in Asia, specifically Hong Kong.

Their support of the proposed law also provoked a backlash from top institutional shareholders, which are increasingly pressing companies to make decisions based on social responsibility alongside the pursuit of profit.

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One British asset manager that holds large stakes in both banks acknowledged the difficulties they faced in keeping the Chinese and US governments onside. “Clearly they have to straddle the fence, with the bulk of earnings in China and Hong Kong, but the need to deal in dollars,” the investor said. “They can’t afford to annoy either camp.”

However, he said that HSBC and StanChart’s support of the proposed law could make it difficult to continue justifying investments in them. Dumping the stocks would be difficult, because they are the only UK banks that offer international exposure, but “if this really blows up, we will have to think whether we want to be involved”, he added.

The investor likened the banks’ backing of the legislation to a hostage situation: “It’s a bit like one of those hostages with a gun to their head, saying they are all fine, when they aren’t.”

However, this investor added that he had confidence in HSBC chairman Mark Tucker — who is known for his political savvy after living and working in Hong Kong for decades — to navigate the dispute: “He knows how to play the game.”

Last summer, HSBC ran into difficulties with Beijing after being caught up in a Sino-US diplomatic row over telecoms company Huawei. HSBC was one of the banks that turned over information to US prosecutors that helped build a case against its chief financial officer, Meng Wanzhou, who was arrested in Canada.

Last week, a court denied her attempt to dismiss an extradition request from the US, where she faces allegations of fraud.

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Earlier this year, an investor said: “Beijing was pretty hacked off with HSBC [over Huawei] — they are on the naughty step. China is so critical to HSBC’s future that if I am half right, it is not a good position to be in.”

Another top-20 shareholder in both lenders said he was “not surprised” by their stance on the proposed law, “given the significance of their commercial interests in the region”. He said his firm was having internal discussions over how to respond to the banks’ declarations of support for the new law.

The share prices of both lenders were little changed on Thursday.

HSBC said in a statement: “We respect and support laws and regulations that will enable HK to recover and rebuild the economy and, at the same time, maintain the principle of ‘one country, two systems’.”

StanChart declined to comment.

A spokesperson for Downing Street said: “If China proceeds with this security legislation this would be in direct conflict with its obligations under the joint declaration, a legally-binding treaty registered with the UN.

“Our message is clear and it is shared by our international partners,” the person added. “We are deeply concerned about China’s plans . . . and have urged them to reconsider.”

Additional reporting by Laura Hughes in London