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AsiaChina


CHINA JUST PUT FOREIGN BANKS ON NOTICE: CREATING AN INTERNAL COMMUNIST PARTY
COMMITTEE COULD BE THE COST OF DOING BUSINESS

By 
Yvonne Lau

July 21, 2022 8:41 PM GMT

Pro-democracy protestors form a human chain in front of an HSBC bank branch in
Hong Kong on August 23, 2019. Western countries have slammed HSBC for supporting
Beijing's controversial National Security Law for Hong Kong, and accused the
bank of freezing the accounts of Hong Kong activists.Geovien So—SOPA
Images/LightRocket via Getty Images
 * 
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 * 
 * 

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features, exclusive interviews, and investigations.

One of the world’s biggest banks, and Europe’s second-largest lender, is showing
that it’s playing by China’s rules. 



London-headquartered HSBC has become the first international bank to establish a
Chinese Communist Party (CCP) committee, according to a new Financial Times
report. China’s companies law requires firms to set up CCP committees, but this
rule has been loosely enforced among global financial institutions—until now. 

HSBC’s move could pave the path for other global lenders to follow suit, and
underscores the delicate line that China-based foreign banks are now toeing
between Beijing and the West.


THE FIRST, BUT PROBABLY NOT THE LAST 

HSBC’s China investment bank, known as HSBC Qianhai Securities, recently formed
the CCP committee, as per the FT report that cited two people familiar with the
decision. 

In China, company employees can initiate CCP committees, which are typically
made up of three or more staff. The committees have two functions: to act as a
workers’ union, and to facilitate installing a party representative to a
company’s top ranks. 

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HSBC is unlikely to offer its CCP committee any management role in the company,
unlike China’s state-owned enterprises (SOEs), which are mandated to appoint a
party secretary to serve as board chairman. SOEs must also establish CCP
committees to facilitate party activities and advance government policies.

Following the report, HSBC released a statement noting that CCP committees are
“common” in mainland China-based companies. “Management has no role in
establishing such groups” and these committees exert zero influence on the
direction of the business, nor hold any formal role in the business’s day-to-day
operations, it added. The bank did not confirm whether its China investment bank
had set up the committee. HSBC did not respond to a Fortune request for
comment. 

HSBC’s actions could pave the way for other foreign lenders in China to do the
same. In the last two years, global lenders have begun taking full ownership of
their mainland operations, leading them to explore whether they must abide by
the law to initiate a CCP committee, according to the FT. “There was an internal
email that said we might need to do something, but for the time being…it’s not
yet compulsory,” the Asia head of one global bank told the publication. 

In 2020, China scrapped foreign ownership limits for financial institutions.
Previously, foreign financial firms were only allowed to hold a 51% stake in
their Chinese joint ventures (JV). HSBC increased its stake in its China
brokerage JV to 90% from 51% in April. Six other global lenders control their
investment banking operations in the mainland, including U.S. banks Goldman
Sachs, JPMorgan Chase, and Morgan Stanley, alongside European lenders UBS,
Credit Suisse, and Deutsche Bank.

HSBC is on the “right side” in setting up the CCP committee, a person with
knowledge of its decision told the FT. “You don’t second-guess the authorities
in China. Any American bank who isn’t doing the same is playing a dangerous
game.” 


EAST VS. WEST 

Though headquartered in London, HSBC’s focus is largely on Asia. The region,
especially China and Hong Kong, accounts for the majority of the bank’s
profits. 



Last year, the British lender shifted the heart of its operations to Asia, when
it moved four senior executives leading its commercial banking, personal
banking, and asset management divisions, from London to Hong Kong. These
departments account for nearly all of the bank’s revenues. 

Asia-Pacific is “central to [our] future growth, investment, and innovation. I
want more of our global executive team to be located in key growth regions,”
including China, Southeast Asia, and India, HSBC CEO Noel Quinn said at the
time. 

Yet as HSBC doubles down on its Asia strategy—it’s investing an additional $6
billion in the region until 2026—it has become increasingly ensnared in the
geopolitical crossfire between China and the West. 

In the last couple of years, HSBC has weathered a barrage of criticism from U.S.
and U.K. lawmakers over its public support for Beijing’s enactment of the
national security law in Hong Kong—a response to the city’s mass pro-democracy
protests that began in 2019. HSBC said at the time that it “respect[s] and
support[s] laws and regulations that will enable Hong Kong to recover and
rebuild the economy.” Western policymakers accuse HSBC of freezing the accounts
of Hong Kong activists and have asked the bank to justify its actions—and
whether it did so at the behest of Hong Kong or Beijing. 

This May, China’s largest insurer, state-run Ping An—HSBC’s biggest
shareholder—called for the bank to be split into “east” and “west” units. Ping
An’s suggestion highlighted HSBC’s vulnerability at being caught between Beijing
and Washington. One source close to HSBC told the FT that such a move could
allow HSBC more breathing room by creating a “China-friendly bank in Asia, and a
U.S.-friendly bank everywhere else.”


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