China’s snub of HSBC the latest sign all may not be well in bank’s relations with Beijing

It’s hard not to see HSBC’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 and Citigroup, 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 earlier in August of CEO John Flint and the bank’s Greater China head, Helen Wong. HSBC shares fell 13% in Hong Kong in 2019 to the close 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. That places it ahead even of China Construction Bank and Agricultural Bank of China, 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 (SME) 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 US bank in China with a consumer-lending business which spans credit cards to SME loans. The list also includes less-influential domestic lenders such as Bank of Xian

Those searching for reasons HSBC may have fallen into China’s bad books may point to Huawei. Liu Xiaoming, China’s ambassador to the UK, summoned Flint to the embassy earlier in 2019 to interrogate him over the bank’s role in the arrest and prosecution of Meng Wanzhou, the CFO of Huawei, the Financial Times reported on Monday. The then-CEO told him HSBC had no option but to turn over information that helped US prosecutors build a case against Meng, the FT said.

On August 9, an HSBC spokesperson 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 US 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 jeopardised 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 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 are not being spared. In an increasingly politicised environment, even a business that’s been around for 154 years will have to tread carefully.

• Gopalan is a Bloomberg Opinion columnist covering deals and banking. This column does not necessarily reflect the opinion of the editorial board or Bloomberg and its owners.

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