More than a year of sustained protests in Hong Kong against the heavy hand of Beijing and socio-economic inequality have changed everything.
The Chinese response – its new tough security law – has placed the West and the People’s Republic on a collision course which could set back commercial and financial relations by decades.
Disquiet over China’s handling of the coronavirus has added to the tensions.
China’s tough new Hong Kong security law has placed the West and the People’s Republic on a collision course which could set back commercial and financial relations by decades
The potential for a prolonged bitter dispute between London and Beijing has left Britain’s two most important financial institutions in Hong Kong, HSBC and Standard Chartered, between a rock and a hard place.
They could keep their counsel but risk holing their businesses beyond the waterline if the Chinese cut up rough.
All hell broke loose when, on May 28, China declared it would enact a security law placing the ‘one country, two systems’ formulation under severe stress.
The United States threatened to suspend the legal, trade and financial privileges it had granted to Hong Kong, which had been treated as a separate country to mainland China.
Within Boris Johnson’s government deep divisions, aroused by the decision to give telecoms giant Huawei a major role in Britain’s 5G networks, burst back into the open.
Britain re-engaged with its colonial legacy, promising to make it easier for 3m Hong Kongers with rights to British overseas passports, to turn them into full citizens if they move continents.
This has left London-listed banks HSBC and Standard Chartered, and insurance giant the Prudential, in a very delicate position.
HSBC’s Asia Pacific chief executive Peter Wong said the bank ‘respects and supports all laws that stabilise Hong Kong’s social order.’
He may have felt there was little choice, given his employer is the banker to many of China’s state enterprises, and earns one-third of its profits from its retail operations in Hong Kong.
Standard Chartered also felt the need to express its fealty. Cue outrage in London from all sides of the political spectrum. HSBC acknowledges it was one of the toughest decisions it has had to take in modern times.
Chairman Mark Tucker felt it had little choice but to effectively cast its vote for political stability. In HSBC’s view it is not in the interest of Britain, Hong Kong or China if confidence in the territory is eroded by street mayhem.
At a time when HSBC is shrinking its operations in Continental Europe and the US, the bank believes it had to keep faith with Hong Kong for the sake of all its stakeholders.
The territory has been its home since 1865. Over the last two decades, as China has expanded to become the world’s second-largest economy, the biggest manufacturing nation and the largest exporter, Hong Kong and HSBC surfed a rising tide.
The territory’s financial core is the beating heart of Beijing’s brand of capitalism. It is where Chinese tech entrepreneurs market their stocks and shares to American investments funds and global investors.
Britain re-engaged with its colonial legacy, promising to make it easier for 3m Hong Kongers with rights to British overseas passports, to turn them into full citizens if they move continents
Money also is raised for China’s ambitious colonial project – the Belt & Road initiative. HSBC’s former chairman, Douglas Flint, is Britain’s special envoy to the project.
Business is conducted in US dollars, rather than the Chinese renminbi, and transactions are organised by Western outfits.
British legal firms, the Big Four accountants and most major investment banks and fund managers have operations in Hong Kong, supported by historic trust in its legal structures and regulation.
Insurers, notably the Prudential, have built out huge new Chinese and Asian operations from Hong Kong.
Big British-founded trading companies: Jardine Matheson, Hutchison and Swire (owners of Cathay Pacific) all still have a home there. But they have smartly hedged bets by moving domicile and investment offshore.
The Hong Kong stock market is now dominated by ‘red chips’ – the Chinese quoted companies.
The share of mainland firms traded on the Hong Kong exchange has climbed from 31 per cent to 73 per cent.
Among China’s ten most valuable firms listed in Hong Kong are tech giant Tencent and the world’s biggest insurer, Ping An. Alibaba, China’s most valuable quoted entity, was floated in New York in 2014.
Extricating British finance from Hong Kong would be a mammoth task. HSBC remains at Canary Wharf. Standard Chartered can move Asian HQ to Singapore.
Here, the Government has huge decisions to make on Huawei’s involvement in Britain’s 5G phone networks.
And it must decide if it can allow China’s CGN to have a big role in new nuclear plants in Suffolk and at Bradwell B in Essex.
Allowing access will be regarded by Beijing’s vociferous critics in the Commons as a dangerous strategic risk.
The combination of ‘revenge’ for Covid-19 together with anxiety about the future of Hong Kong is the biggest threat to Sino-British relations in decades.
It could also cast a terrible pall over the Brexit vision of a Global Britain.
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