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Thursday, February 29, 2024

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Beijing Attempt To Bring Down Britain’s Mighty HSBC

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The legal showdown between the United States and China has deepened as political turmoil engulfed Hong Kong and is now getting onto the banking sector. Chinese state-owned companies have started to end or cut back business with HSBC as part of Beijing plan.

Already, nine state-owned enterprises 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 have 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.

Last November, China Baowu Steel Group, the world’s largest steel maker, gathered its finance department for a training session on the outskirts of Shanghai. One highlight was a presentation featuring a sensitive slide: a “black list” of 60 lenders that the state-owned steel giant had declared off-limits.

The move of 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. “HSBC works with more than 1,200 Chinese holding companies and their subsidiaries, both on the mainland and in over 50 overseas markets,” the bank said in its statement.

The pullback by state firms is not HSBC’s financial soundness 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 U.S. indictment of an executive at Chinese national tech champion Huawei Technologies.

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.”

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 U.S. case against Huawei’s chief financial officer. Beijing was enraged that the bank had provided information in 2017 about Huawei to the U.S. Department of Justice, which helped bolster the ongoing criminal case. HSBC’s involvement was first made public.

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