HSBC Gets the Cold Shoulder in China
(Bloomberg Opinion) -- It’s hard not to see HSBC Holdings Plc’s exclusion from China’s interest-rate reform as a snub.
Hong Kong’s biggest bank wasn’t included in a list of 18 lenders that will participate in pricing for a new loan prime rate that the People’s Bank of China will start releasing Tuesday. The roster includes foreign lenders Standard Chartered Plc and Citigroup Inc., which have smaller China businesses than HSBC.
It’s the latest sign that all may not be well in HSBC’s relations with Beijing, after a turbulent period that has seen the departures this month of Chief Executive Officer John Flint and the bank’s Greater China head, Helen Wong. HSBC shares fell 13% in Hong Kong this year through last Friday, compared with a decline of less than 1% in the benchmark Hang Seng Index.
London-based HSBC, which is also Europe’s biggest bank, has made China a key plank of its growth strategy. The lender is the third-largest corporate bank in the country by market penetration, according to data provider Greenwich Associates LLC. That places it ahead even of China Construction Bank Corp. and Agricultural Bank of China Ltd., two of the nation’s big four state-owned lenders. Standard Chartered and Citigroup don’t rank among the top five, according Gaurav Arora, head of Asia Pacific at Greenwich.
It could be argued that HSBC’s focus on big corporate clients means it’s less attuned to the loan market for small and medium-size enterprises that are the focus of China’s changes to its interest-rate regime. That would be a stretch, though. Corporate banking is a scale game. And even though StanChart may have a greater preponderance of smaller clients, HSBC surely has many similar customers. Citigroup’s inclusion makes more sense: It’s the only U.S. bank in China with a consumer-lending business that spans credit cards to SME loans. The list also includes less influential domestic lenders such as Bank of Xian Co.
Those searching for reasons why HSBC may have fallen into China’s bad books may point to Huawei Technologies Co. Liu Xiaoming, China’s ambassador to the U.K., summoned Flint to the embassy earlier this year to interrogate him over the bank’s role in the arrest and prosecution of Meng Wanzhou, the chief financial officer of Huawei, the Financial Times reported Monday. The then-CEO told him HSBC had no option but to turn over information that helped U.S. prosecutors build a case against Meng, the FT said.
On Aug. 9, an HSBC spokeswoman denied that Wong’s departure as Greater China head was linked to any issue involving Huawei, pointing out that she announced her resignation before Flint’s departure. Still, the bank has faced criticism in China’s state-owned media over its role in the case. The way HSBC helped the U.S. Department of Justice acquire documents concerning Huawei was unethical, the Global Times reported previously, citing a source close to the matter. The bank was likely to be included in China’s first “unreliable entity” list of companies that have jeopardized the interests of Chinese firms, it said.
The timing of China’s interest-rate snub won’t do anything to quell jitters, coming a day after Cathay Pacific Airways Ltd. CEO Rupert Hogg resigned amid criticism from Chinese regulators over its stance on employee participation in Hong Kong’s protests. Beijing is becoming more muscular in its attitude to the city’s unrest and foreign-owned businesses aren’t being spared. In an increasingly politicized environment, even a business that’s been around for 154 years will have to tread carefully.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.
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