Virtually all the lenders branded by China Baowu as too “high risk” to engage with were troubled Chinese banks, large and small. But at the very end of the list, a copy of which was reviewed by Reuters, there was a single foreign lender, one of the largest banks in the world: HSBC Holdings PLC.
The executive making the presentation did not mince words. China Baowu can’t use these banks to obtain the short-term lending instruments known as commercial paper, the executive said, according to a person who attended the meeting. And in case anyone missed the British bank’s presence on the list, the presenter said: “If you look at the bottom, of course you can see HSBC.”
The decision by Baowu to blackball HSBC is part of a clampdown on the global London-based bank by many of China’s gargantuan state-owned enterprises – a campaign described to Reuters in interviews with HSBC bankers, and employees at state companies who have first-hand knowledge of their operations. Controlled by China’s ruling Communist Party, these companies manage the nation’s largest industrial projects and are responsible for $9.8 trillion of revenue annually.
The reason for the pullback by state firms isn’t HSBC’s financial soundness, which isn’t in question, but rather Chinese politics. People inside the state enterprises and HSBC say Beijing has grown disenchanted with the bank over sensitive domestic and international legal and political issues, from China’s crackdown in Hong Kong to the US indictment of an executive at Chinese national tech champion Huawei Technologies.
Reuters 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. 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.
HSBC has for more than 150 years been a force in banking in Greater China – its initials stand for The Hongkong and Shanghai Banking Corporation Limited. The bank’s troubles were initially sparked by its role in a high-profile US case against Huawei’s chief financial officer. Beijing was enraged that the bank had provided information in 2017 about Huawei to the US Department of Justice, which helped bolster the ongoing criminal case. HSBC’s involvement was first made public by a Reuters report in 2019.
Pressure on HSBC increased during the pro-democracy protests that shook Hong Kong in the second half of 2019, and when China imposed a tough national security law in the city in 2020. During the protests, Chinese social media users lashed out at the bank, alleging one of its employees had criticized the actions of the Hong Kong police in an online post – a controversy that was covered by state media.
The criticism from Beijing has been withering. Citing the Huawei case and what it said was the bank’s lack of support for the national security law, the People’s Daily, the main mouthpiece of the ruling Communist Party, warned last June that HSBC risked losing much of its business and…