China’s Threat Continues to Hang Over HSBC

Multinationals line up to kowtow to Beijing

China’s Threat Continues to Hang Over HSBC

Even after a top HSBC executive professed support for the controversial national security law, a Chinese state-owned newspaper aggressively threatened the venerable bank, whose history in Hong Kong dates back to the 19th century.

On June 3, HSBC posted a statement on WeChat, a Chinese social media platform, saying its Asia Pacific chief executive Peter Wong Tung-shun had signed a petition along with a list of other banks, businesses and brokerages in support of the national security law. Canvassers have also gathered nearly 3 million signatures by individuals in Hong Kong in support of the law in an intensive effort by Beijing to manufacture support for the unpopular measure.

While HSBC is perhaps the biggest of Hong Kong’s institutions to meekly agree to the implementation of the law, it is almost certainly not the only one, with a long list expected to fall in line over the next few months as Beijing shows its teeth.

“There is a bottom line that HSBC can’t cross, otherwise the bank could lose the China market,” warned an opinion column under the “GT Voice” section of the ultra-nationalist Global Times, which is often viewed as the Politburo’s megaphone. It issued the warning on June 4, the anniversary of the Tiananmen massacre in 1989.  “It is Hong Kong that is indispensable to HSBC, but the bank is not too big to fail within Chinese boundaries.”

Ironically, HSBC is submitting to Beijing’s warnings after announcing in February that it would retreat from its extensive, decades-long, largely unsuccessful foray into international banking back to the city it had called home for a century and a half, revealing massive cuts to its operations in Europe and the US, including 35,000 jobs over the next three years, as well as further slimming its investment banking and equity trading operations, and folding its private banking arm into its retail operations to focus on what it described as faster-growing Asian markets.

During the first quarter of 2020, Hong Kong contributed 88 percent of the profits of HSBC, which has US$2.7 trillion of assets and operations in at least 65 countries. Hong Kong had the most HSBC customer accounts at HK$3.9 trillion (US$502 billion) in 2019, followed by Singapore with customer accounts totaling HK$378.3 billion and mainland China in third place at HK$376.4 billion, according to HSBC’s 2019 annual report.

The law, which was passed by China’s rubber-stamp parliament, the National People’s Congress, on May 28, is expected to come into force in Hong Kong in a few months. The law will criminalize collusion with foreign forces on Hong Kong affairs, terrorism, Hong Kong separatism and subversion.

The law has sparked widespread international disapproval as well as in Hong Kong. World figures including US Secretary of State Michael Pompeo and UK Prime Minister Boris Johnson have condemned the bill. The legislation caused US President Donald Trump to announce on May 29 the ending of US privileges for Hong Kong, on the grounds that the city has lost its autonomy.

HSBC’s action has not appeased the Global Times. The newspaper said, “There is a reason to suspect that Wong’s support for the national security law was made because of public pressure. The UK-based bank needs to show greater sincerity to express its position on the US-China tension and the national security law.”

“HSBC’s silence on the issue in the past week is worth noting. In this sense, Wong’s support comes late. It seems it’s a very difficult decision for the bank to express its support for the national security law,” said the newspaper.

At the opposite end of the political spectrum, Jimmy Lai Chee-ying, an anti-Beijing Hong Kong activist, said HSBC professed support for the security law due to pressure from Beijing, not the public as the Global Times claimed. On June 4, the tycoon tweeted, “HSBC kowtowed eventually. HSBC, Swire, Jardine and many more are under pressure to openly pledge their allegiance, or they will face the consequences. It is the cost the world pays turning a blind eye to the (Chinese Communist Party) bully. Enough is enough.”

When asked, an HSBC spokeswoman said HSBC had nothing to further to say.

In a statement on June 3, Standard Chartered said the security law “can help maintain the long-term economic and social stability” of Hong Kong.

Asked whether Standard Chartered was pressured to support the security law, the bank’s spokeswoman said, “We hope greater clarity on the final legislative provisions will enable Hong Kong to maintain long-term economic and social stability. We remain positive that Hong Kong will continue playing a key role as an international financial hub.”

Standard Chartered, HSBC and Bank of China (Hong Kong) are the only three banks which are authorized to issue Hong Kong dollar notes.

On the same day, Jardines Group, a British firm that has done business in Hong Kong since the territory became a British colony in 1842, published a full-page Chinese-language statement in a pro-Beijing newspaper, Ta Kung Pao, saying it was important to enact a legal framework to safeguard the city’s national security. Jardines didn’t reply to Asia Sentinel’s questions at press time.

“It is very unusual for any company to support a national security law,” a former banker based in Hong Kong told Asia Sentinel. “Only Communists who seek to control all aspects of the economy would do this.”  

CY Leung’s threat

The Global Times was not the first to threaten HSBC. On his Facebook page on May 29, former Hong Kong chief executive Leung Chun-ying wrote in Chinese that HSBC’s business in China “can be completely replaced overnight.”

Leung, now a vice-chairman of the Chinese People's Political Consultative Conference (CPPCC), said Hong Kong officials and delegates to mainland parliamentary bodies, as well as Hong Kong and Chinese businessmen, should “immediately protect themselves, to avoid a fate similar to Huawei.”

Huawei Technologies, a leading Chinese technology company, is caught in the Sino-US tussle. On May 27, the British Columbia Supreme Court in Canada ruled that Huawei chief financial officer Sabrina Meng Wanzhou is eligible to be extradited to face trial in the US on fraud charges.

Leung said on Facebook that HSBC’s profits mainly came from China including Hong Kong, yet the London-headquartered bank’s board and senior management are mostly British. He added, “We must let the British government, British politicians and HSBC know which side of the bread is buttered.”

The Global Times said, “HSBC’s alleged involvement in Meng’s case also leaves a permanent stain on its record.” That is because HSBC earlier conducted an internal investigation into Huawei that was used by the US Department of Justice as evidence to bring charges against Meng.

“Wong’s support is not enough to resolve all the problems faced by HSBC and we still need to watch HSBC’s moves in the future related to issues such as Huawei,” the Global Times warned.

Source : Asia Sentinel More   

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Southeast Asian Currencies: Stronger Than They Look

Covid-19 isn’t biting as badly on currencies as expected

Southeast Asian Currencies: Stronger Than They Look

It is axiomatic that stock and currency markets have minds of their own and often appear moved by sudden sentiments than changes in the facts. But ignorance on the part of so-called reliable information sources such as Bloomberg can play a significant part in increasing volatility.

Take, for example, the issue of Asian emerging market currencies to which Bloomberg writers seem to have taken a particular dislike. On June 4 Bloomberg reported that a shift in sentiment was driving capital out of Asia to Latin America due to concerns that the China-US confrontation would help one and hurt the other. On June 5, the value of the Philippine peso rose to 49.8 against the dollar, its highest level in more than a year.

Likewise, the Indonesian rupiah almost regained the 13,900 level to the US dollar compared with 16,000 just a few weeks ago. The Thai baht has shown a similar bounce-back, although not to the exceptionally strong levels seen in late 2019 before the virus killed tourism.

Even the politics-bedeviled Malaysian ringgit has staged a significant recovery even if still well below year-ago levels. Contrary to “outflow” talk, Asian currencies have mostly been rising steadily from late March nadirs

Just a few weeks ago, Bloomberg was using some Standard & Poor’s data and a debt downgrade to imply an impending crisis for Indonesia due to its state enterprise debts and possibly inadequate level of foreign reserves to short term debt. Since then the rupiah has rebounded by 19 percent and likewise the bond and stock markets as it has become clear that developing Asia’s situation was nowhere near as bad as had been suggested.

A broader measure of confidence is the value in US dollars terms of the Asian Bond Fund listed in Hong Kong and Singapore. It is a portfolio of local currency-denominated, medium-term government bonds including those of China, Korea, Indonesia, Thailand, Malaysia, Hong Kong, Singapore and the Philippines. It currently trades at about U$118.8, almost a record high and 11 percent above its level in late March but still yields 2.6 percent. With inflation low everywhere for now, Asian bonds have been offering a superior real return against developed countries where rates have been driven to near zero by central bank buying.

The strength of the currencies of the less-advanced Southeast Asian countries may seem a particular surprise. However, data so far suggests that their ability and will to print money to support their economies is rather less than in the US and Europe. Consciousness of debt levels ingrained during the Asian crisis 1997-99 still survives. Mechanisms to make payments to their huge numbers of self-employed workers is also weak.

As for the trade balances, evidence so far suggests that imports have been slowing faster than exports. All of the Southeast Asian economies are net importers of oil and prices of some of their leading commodity exports such as palm oil, rubber, rice and copper have so far proven relatively resilient even if tourism has collapsed and, for the Philippines, remittances are down.

Revival of consumer demand and capital goods imports could soon cause deterioration in trade balances. Meanwhile, it is anyone’s guess if and when export demand for garments, shoes and electronic components will revive, tourism returns and whether the oil price collapse will see a permanent reduction of remittances from the Middle East.

The strength of Asian currencies could yet be reversed if China lets the yuan slide to retaliate against the US. But the yuan is not the only story in Asia. The yen, NT dollars and Korean won are all showing that strength is better underpinned by fundamentals than their counterparts in the US and Europe.

Source : Asia Sentinel More   

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